Pope Leo XIV writes:

Leo XIII’s Encyclical Rerum Novarum constitutes a milestone in the development of the Church’s social teaching. The document places the dignity of work and of workers at the forefront of its reflection; affirms the right to a fair wage for oneself and one’s family; recognizes that persons have a fundamental value that takes precedence over capital and profit…

It presents fair wages as the concrete means of verifying the justness of the entire socioeconomic system because they reveal whether the worker is treated as a person or merely as a cost of production. Work is not considered simply as a problem to be dealt with or a means of generating income, but a fundamental good for the person, a principle of economic activity and the key to the entire societal question.

This is a wonderful aspiration, and one that AI-driven productivity might eventually achieve, perhaps in 50 to 100 years. But throughout human history, including now, work has had to be a means of generating the income necessary to buy needed goods and services, not a means of uplifting the spirit.

Without work, there is no output. Without output, there is widespread immiseration. There was no choice. A society of worker-owned cooperatives would have produced outcomes no different from, and possibly worse than, those of a capitalist system.

The encyclical goes on to say:

Through work, human beings bring their freedom, creativity and capacity for cooperation into play, contributing to the cultural and moral elevation of society. In light of this, the various kinds of job insecurity, fragmented career paths and automation must not be evaluated solely in terms of efficiency, but in relation to the dignity of the worker, the right to sufficient remuneration and the genuine possibility of participating in society.

But the reality is that there are many less-than-fully satisfying jobs workers have to do because, without them, society wouldn’t function. Garbage collection is a tough, backbreaking job. But thankfully, we have workers willing to perform this critical task in exchange for pay. The development of AI-guided autonomous garbage trucks is a way to relieve that burden. To be sure, it would require garbage collectors to find new employment, but in their new jobs, their working conditions would likely be safer and their quality of life would likely improve.

The encyclical addresses a fair wage. Is a wage of 40 cents an hour with only a 4 percent rate of profit fairer than a wage of $40 an hour with an 8 percent profit rate? If so, why? Wages were low 100 years ago, not because of the selfishness of capital, but because of the paucity of technology and the resulting low productivity.

It’s one thing to talk about boosting the minimum wage—something Democrats should have done when they controlled the White House and both chambers of Congress. But it’s very different to believe that if the minimum wage were $40 an hour, this would translate into that income in inflation-adjusted dollars. It would not.

Related to this is the view in social capitalism that companies should not be focused on profits or productivity. Pope Leo XIV writes that while many of the historical conditions described by Leo XIII have changed, “at least two insights remain highly relevant today: the primacy of human labor over any mindset focused solely on finance or productivity.”

I agree that over-financialization is a problem. But productivity and profits are not. Without productivity growth, we would all be paupers and peasants. And without profits, companies would not take the risks needed to innovate and boost productivity and wages. We don’t live in a zero-sum world with the capitalists pitted against the proletariat.

Further, the encyclical echoes left-wing dependency theory:

With his Encyclical Sollicitudo Rei Socialis, marking the twentieth anniversary of Populorum Progressio, John Paul II reexamined the scourge of underdevelopment. He acknowledged the failure of numerous attempts to accelerate the economic development of poor peoples and to assist them in the process of industrialization, noting the persistent and indeed widening gap between the world’s North and South. He also denounced the economic, financial and commercial mechanisms that, managed by the strongest economies, structurally favor their own interests while stifling weaker economies, and he asked that they be subjected to serious ethical, not just technical, scrutiny.

But this reflects a fundamentally flawed version of dependency theory, and for AI, it implies particular policies: no software IP protection and limits on the use of AI to boost productivity in low-income nations. The first would slow global innovation. The second would help keep poor countries poor.

It also reflects the view that income inequality is rampant:

This perspective needs to become part of a broader view of global dynamics. While the world’s wealth has grown in absolute terms, it is increasingly concentrated in fewer hands, widening inequalities both within and between countries. “There are a few who have too much, and too many who have little, that is the logic of today.”

The reality is that the global Gini coefficient has declined, not risen, over the last few decades.

Additionally, the encyclical mirrors the dominant social capitalist view that higher living standards are not the most important solution to many problems, including health care, poverty, and national budget deficits. Rather, redistribution is.

The Pope writes:

Benedict XVI reiterated that economic activity cannot claim to solve social problems simply through the expansion of a commercial mentality, but must be ordered toward the common good, for which the political community bears its own irreplaceable responsibility.

To be sure, economic growth is not enough. But without it, efforts toward the common good will be much harder to achieve. That makes the encyclical’s lack of focus on technology and profit-driven economic growth even more troubling, given its assertion that “it is not enough to extol individual freedom or private enterprise if we then allow a multitude of people to continue living without decent work, protections or access to basic necessities.”

Poverty, especially in low-income countries, is not the result of the rich getting too much. It’s because too little is being produced.

Perhaps the most obvious way in which the encyclical moves from a needed call for a more human world to specific, doctrine-inspired policies is its treatment of intellectual property. The document states:

Today, among the goods that are universally intended for everyone, we must also include new forms of property, such as patents, algorithms, digital platforms, technological infrastructure and data. In a context where the wealth of nations depends increasingly on knowledge and technology, when these goods remain concentrated in the hands of a few, without adequate forms of sharing and access, a new imbalance is created that contradicts the universal destination of goods. In turn, it widens the gap between the included and the excluded, between those who can participate in the digital revolution and those who remain on the margins.

Certainly, there should be robust debates around intellectual property and how to strike the right balance between the incentives to innovate that IP provides and the immediate use of technologies that weak IP enables.

But the encyclical doesn’t do that. It simply reproduces the social capitalist view that IP should be eliminated so that the masses can get cheap or free drugs, software, and content now. However, without the ability IP provides to monetize investment, there would be fewer new drugs, software, and content in the future.

We see the same social capitalist view with respect to data:

Like the natural environment, the “digital ecosystem” can be preserved or exploited, shared or monopolized. Solidarity demands that decisions regarding data, algorithms, platforms and artificial intelligence take into account not only the immediate benefit for a few, but also the impact on all peoples and on future generations.

Making all data open would mean a less robust digital ecosystem and the end of free digital services, especially in developing nations. Users in poorer countries are being subsidized by users in richer countries when it comes to free Internet access, because lower average incomes mean those markets generate less advertising revenue. In effect, removing the ability to monetize data would limit revenue for Internet platforms and similar companies.

In addition, Pope Leo XIV does not seem to notice the intellectual contradictions in the document. On the one hand, it wants digital platforms to combat hate and misinformation, but on the other, it wants to reduce their “enormous power.” Which is it?

And of course, who defines misinformation? The state, to support its own interests? Certain politically inclined groups with clear biases, like the Southern Poverty Law Center?

Another contradiction is that the encyclical claims companies seek profits above all else, yet it also asserts that these very same companies seek to exclude certain groups. It says, “Justice demands that we prevent the emergence of new forms of exclusion and deprivation of freedoms: individuals and peoples hindered or denied access to basic technologies.” But if companies are only interested in profits, why would they deny sales to anyone?

Furthermore, the encyclical, like social capitalist views generally, damns AI for a host of problems that are not unique to it and that are, for the most part, already regulated, including “invasive surveillance and social groups penalized by opaque algorithms that perpetuate prejudice and discrimination.”

Companies selling AI services have massive incentives not to discriminate. Why sell an insurance algorithm that misprices risk? And in many AI use cases, including hiring, lending, credit scoring, and insurance, laws already exist that prohibit discrimination. AI doesn’t change that.

Like virtually all who embrace social capitalism, this encyclical gets technology and employment wrong, succumbing not only to the lump-of-labor fallacy but also to the preference for short-term protection against long-term progress.

The document asserts:

the convergence of automation, robotics and AI is rapidly transforming the very structure of work. It is said that this will bring great improvements for everyone. In reality, however, the “new ways” of working are not necessarily better, for “while AI promises to boost productivity by taking over mundane tasks, it frequently forces workers to adapt to the speed and demands of machines, rather than machines being designed to support those who work. As a result, contrary to the advertised benefits of AI, current approaches to technology can paradoxically de-skill workers, subject them to automated surveillance and relegate them to rigid and repetitive tasks. The need to keep up with the pace of technology can erode workers’ sense of agency and stifle the innovative abilities they are expected to bring to their work.” Precisely in order to avoid this drift, it is necessary to design systems that are centered on the human person and not solely on performance.

It goes on to claim that because of the so-called “fourth industrial revolution”:

this concern is even more acute, as innovation is often pursued solely for reducing costs and increasing profits... Yet, the protection of employment opportunities and the irreplaceable role of the individual must remain the general rule. The pursuit of greater profits cannot justify choices that systematically sacrifice jobs, because the human person is an end, not a means, and the economic order must remain subordinate to human dignity and the common good.

So, does that mean it was not humane to develop the tractor to boost agricultural automation? Or the electromechanical telephone switch to replace operators? Or self-service gas stations to replace gas jockeys? Productivity means reducing costs. That means reducing prices. And that means helping consumers.

To be sure, if for some reason AI were to create a lumpenproletariat, that would be cause for concern and action. But as I have written until my fingers bleed, there is no logic behind that claim. Global per capita incomes could go up by 500 percent, and people would not run out of things to buy.

On top of that, let’s say we cut the workweek to 15 hours. We are now talking about a 1,500 percent increase in global productivity, a far cry above the long-term average of 3 percent a year.

And of course, the encyclical embraces a social capitalist view that government should step in to ensure that no one ever loses their job because of AI. The Pope writes:

At this time of transition, it is not enough to react only when jobs disappear; we must oversee the transformation in advance. One viable path is, first of all, to establish social criteria for innovation. Here, every introduction of automation and AI should be accompanied by verifiable measures to protect the employment, retraining and participation of workers. In this way, technology will be oriented toward freeing up human time and capabilities, rather than producing exclusion.

If AI must protect employment, then by definition, productivity growth will be significantly limited. We didn’t get elevator productivity by making it easier for elevator operators to open and close doors. We got it by innovating self-service elevators. The reality is that if automation can’t free up human time, achieving higher living standards will be almost impossible.

The encyclical rightly points to the need for “proactive policies that make continuous training and professional transitions accessible to all, ensuring that the cost of adaptation does not fall solely on individuals.” It further states that “the benefits of innovation must be paired with investments in skills, infrastructure and essential services to ensure that technology does not widen the gap between those who have and those who have not.”

Yes, policymakers should focus on better worker training and transition assistance, as well as on investing more in skills and infrastructure. The document also advocates for:

measures to ensure equity: taxation, social protection and industrial policies must correct the imbalances created by the concentration of wealth and power. Indeed, these criteria do not constitute a curb on innovation; instead they make it civilized and humane.

Again, yes, that is generally true. Much can and should be done to ensure a fairer and more just world. And rather than posture and pontificate against AI, AI opponents should push for a world-class worker adjustment and dislocation system, as ITIF has laid out. But that is very different from tying down AI “Gulliver-like,” as the encyclical calls for.

The problem is that this logic quickly moves from helping workers adjust to slowing AI itself. The encyclical urges “rigorous evaluation and even, at times, a slower pace in adopting AI,” saying that this “does not mean opposing progress; instead, it is an exercise of responsible care for the human family.”

It goes on to assert: “What is needed is a more active political involvement that is capable of slowing things down when everything is accelerating, and of protecting the opportunities for communities still to be able to participate and ask questions.”

While it might not mean opposing progress, that will be the effect.

One rationale offered for this slower approach is environmental. Here again, the encyclical reflects the social capitalist view of the environment, claiming degradation is caused by capitalism and consumerism:

Broadening our perspective to the use of AI in society, we see that it is now embedded in decision-making processes across many sectors and at multiple levels: in communication, management and control. The gains in efficiency and the potential to improve certain services are clear, yet rapidly and uncritically adopting them exposes us to a range of risks, including the tendency to overlook the environmental impact.

Current AI systems require enormous amounts of energy and water, significantly influencing carbon dioxide emissions, and place heavy demands on natural resources. As their complexity increases, especially in the case of large language models, the need for computing power and storage capacity grows too, which requires an extensive network of machines, cables, data centers and energy-intensive infrastructure. For this reason, it is essential to develop more sustainable technological solutions that reduce environmental impact and help protect our common home.

But why single out AI companies? Electricity demand is rising rapidly worldwide (without AI) as companies and consumers switch from fossil fuels to electricity. Why are they not called out for being environmental scofflaws? Also, the encyclical fails to note that it is AI and data center companies leading clean energy innovation and deployment, especially as fiscally constrained governments have cut their support.

Continuing to echo the dominant social capitalism doctrine, the encyclical treats algorithmic responsibility as another rationale for intervention:

Indeed, entrusting an algorithm in practice with the power to select who is worthy or not, without anyone bearing responsibility for that judgment, is to hand over the task of redefining the boundaries of human possibilities.

To be clear, any organization that uses AI is ultimately legally responsible for harms or errors. It is the organization that will be sued. And if it wants to, in turn, sue the company that provided it with AI tools, it is welcome to do so.

The document also channels the same disdain for large companies and concentrated industries as the social capitalist view does:

The principles of Social Doctrine offer a framework for understanding this new reality. In a world where data, computational resources and regulatory influence remain in the hands of a few, to speak of the common good means exposing this new form of epistemic, economic and political asymmetry and naming the new monopolies of AI.

The reality for over a century is that most highly capital-intensive and innovative industries are characterized by competitive oligopolies, not Adam Smithian competition. Any attempt to change that will lead to lower living standards and reduced competitiveness.

Try telling any AI company CEO that their company enjoys a cozy monopoly, and they will look at you like you are crazy. The truth is that they all face the risk of Schumpeterian creative destruction, and that is what keeps them relentlessly focused on innovation to serve customer needs.

Taken together, these concerns lead the Pope beyond a “proceed with caution” warning. The encyclical doesn’t just call for slowing down AI development; it calls “to disarm” it:

Disarming AI means freeing it from the mentality of “armed” competition, which today is not limited simply to the military context, but is also an economic and cognitive phenomenon. This entails a race for ever more powerful algorithms and larger datasets, driven by the desire to secure geopolitical or commercial dominance. To disarm means discrediting the assumption that technical power automatically confers the right to govern. To disarm does not mean rejecting technology, but preventing it from dominating humanity.

It means freeing technology from monopolistic control and opening it to discussion and debate, therefore making it human-friendly and restoring it to the plurality of human cultures and ways of life. Our task today is not only ethical or technical. It is ecological in the deepest sense, for it concerns a new dimension of our common home. AI is already an environment in which we are immersed, as well as a force with which we must engage. For this reason, merely regulating it is insufficient; it must be disarmed, welcoming and accessible.

This is akin to saying that in the face of the threat of a globally aggressive Soviet Union, the West should have disarmed. Global disarmament might have been good, but it was not possible. The Soviets never would have agreed. Today is no different.

The free world is caught in a critical AI competition with China, and if the CCP wins, it would have enormous negative implications for Western freedom. To the extent there are issues around LLM safety, the two superpowers can and should cooperate, something President Xi and President Trump touched on during their May 2026 summit. But the last thing the CCP will do is “disarm” and slow its AI development.

The encyclical is on much firmer ground when it turns to certain currents of thought that “interpret progress as surpassing the human condition.” Perhaps the best part of the document is the Pope’s worry about transhumanism and posthumanism. He writes:

These perspectives form the ideological background present in some centers of technological power and occupy the collective imagination in a simplified form, especially in the media and on social networks. They tend to foster enthusiasm for new technologies through a futuristic vision of an “enhanced human being” or “human-machine hybrid.”

Pope Leo XIV is right. The Silicon Valley tech bros, with all their hype about the “Singularity” and ASI (artificial superintelligence), reject fundamental aspects of being human. And he is correct to call them out. They do more harm than good by scaring the bejesus out of many people. But even in Silicon Valley, these voices are a minority and should be usefully ignored—just don’t watch their TED Talks or follow them on X.

Yet even here, the encyclical goes too far by blurring the line between rejecting transhumanism and supporting innovation that reduces suffering. It states: “Our relationship with life seems to be in crisis today. Everything that appears as a “limit” — incapacity, illness, old age, suffering, vulnerability — tends to be seen primarily as a defect to be corrected, rather than as a reality.”

Does the Pope really believe that illness is an inherent part of being a child of God? Clearly, this can’t be the case, given the suffering that diseases like cancer and Alzheimer’s impose on people. Supporting medical innovation to cure illness is very different from supporting radical life extension.

It’s still early on the S-curve of AI innovation, and hopefully, the social capitalist techno-Lilliputians will not be able to tie down the AI Gulliver. But documents like the encyclical make that more likely.

Citing the Second Vatican Council, Pope Leo XIV writes:

the Church is not afraid to encounter human knowledge. Indeed, the word of God provides reliable standards for establishing paths of justice and opening ways of reconciliation and peace among peoples. When it comes to applying these standards to the complex situations of our time, the contributions of philosophy and of the human and social sciences is essential.

The only problem is that the social sciences are not sciences in the sense that physics and chemistry are. Especially in the last two decades, they have become ideologically determined doctrines, as a significant share of scholars now see their jobs, to use Marxian terms, as changing the world rather than understanding it.

As such, the encyclical reads less like careful analysis shaped by policy humility—the idea that any assessment of problems should be open to a variety of possible policy solutions, ideally guided by expert analysis and logic rather than emotion and ideology—than like a theological reflection of the doctrine of social capitalism (also known as progressive capitalism, inclusive capitalism, stakeholder capitalism, or Polanyian liberalism). This is perhaps not surprising because social capitalism has now, for all intents and purposes, replaced neoliberalism, at least among most center-left elites in the West. Social capitalism is now the default starting point for all conversations and policy discussions.

This matters because once a doctrine becomes the de facto reference point, real debates are over. Just as neoliberalism was a tight intellectual straitjacket that limited certain ideas and concepts from even being considered, such as tariffs, higher taxes, regulated markets, and a higher minimum wage, social capitalism today exerts the same, often unconscious constraints.

That means that with regard to most techno-economic issues, the core consensus has already been reached, and the only point up for debate is the mechanics of implementation—e.g., should we adopt universal basic income or just reduce taxes on “working people”? Of course, that has been the goal of progressives for at least the last two decades: Change the frame so that they dominate the conversation and their solutions are the only ones seen as acceptable.

The key problem is that the doctrine of social capitalism will lead to actions and policies that weaken the West vis-à-vis China while limiting the innovation and productivity growth needed. Indeed, in many ways, this is its goal, as it is grounded in an animus toward growth, technology-driven creative destruction, international economic competition, and large business.

To be sure, neoliberalism was not without its faults. But social capitalism may be worse. Moreover, as I have written, assuming they are binary options is a false, tribal choice. But rather than embracing the doctrine of national developmentalism or “innovation economics,” which offer superior ways to address the challenge of neoliberalism without undermining innovation, competitiveness, and productivity, the left has rejected any and all considerations of those alternatives in favor of the social capitalism religion.

This is evident in the encyclical, which reflects the social capitalism doctrine and, as such, embraces a kind of capitalism that is very different from what we have now, at least in the United States. (Europe has already fully embraced social capitalism.)

The encyclical comes down in favor of at least six key components of social capitalism.

1. Dependency theory: This holds that low-income nations are low-income not because of domestic failures, such as corruption, poor institutions, bad business climates, or opposition to technology and creative destruction, but because of the oppression, or at least selfishness, of rich nations. The overlords of the North have kept the victims in the South down. This is why the encyclical argues that the way to improve living standards in developing nations is for the North to give them more resources. Indeed, the encyclical states that a key reason low-income nations remain poor is because of “economic, financial and commercial mechanisms that, managed by the strongest economies, structurally favor their own interests while stifling weaker economies.”

   But if this theory is correct, why did South Korea, a country that had the same per capita income as Afghanistan in the 1950s, grow to equal America’s per capita income in the early 2000s? Did the North forget to stifle South Korea? No, of course not. The Korean political economy desperately wanted growth. As Joe Studwell points out in How Asia Works, institutions and culture matter, not oppression from the haves in the North.

2. Equity: Social capitalism sees growth as either problematic because it destroys the environment or inconsequential because workers don’t benefit from it. And so, the task for business and government is to put equity and fairness first. The Pope writes, “we can diligently contribute to every initiative that builds a more just world.” But does the Pope really prefer India, a country with a Gini coefficient almost half that of America’s? This is not meant to be a frivolous question, but it does suggest that if the goal is to support humans as children of God, then a nation with low income but greater equality is, by definition, inferior and less humane than a nation with a broad middle class coupled with a small share of highly wealthy people.

3. Technology neutrality: A concept from the field of Science, Technology, and Society, this holds that technologies are not de facto good. Rather, all new technologies must be shaped by society so they do not become harmful. Without that shaping, including through regulation and even bans, the negatives will significantly outweigh the positives.

   This sounds both logical and appealing, but history shows it to be largely wrong. Technological determinism driven by consumer welfare is the prevailing pattern. For example, once the internal combustion engine was developed, cars and suburbs were inevitable. Once biotech was developed, life-saving, but sometimes expensive, drugs were inevitable. Once the Internet and Web 2.0 emerged, social media was inevitable. All technologies have pluses and minuses, but if a non-military technology reaches the marketplace, by definition, its benefits significantly outweigh the costs.

4. Marxian alienation theory: This holds that because of the organization of capitalist economies, too many workers, if not most, are alienated from their true selves because they must serve their selfish capitalist masters. But the issue is not capitalism: Soviet workers were also alienated, in fact, even more so. The issue is that technology has not evolved enough to allow workers to have high incomes with few working hours, something AI can move us toward if society embraces it instead of shackling it. Yet the encyclical criticizes the current system for capitalist-generated alienation, suggesting that heavy regulation and anti-corporate policies are in order.

5. Lump-of-labor fallacy: This holds that once a job is eliminated by technology, it is gone for good, and workers are unemployed for long periods, if not forever. A corollary to this is the widely held belief that the only good process technology is one that complements labor, not one that replaces it. Logic, history, and economic analysis show that this is simply wrong. Yet the encyclical, like almost all work today on AI and employment, takes this fallacy for granted and endorses, like most social capitalists, slowing AI down.

6. Predistribution: This is the idea that it’s not enough for governments to work toward greater fairness through policies like social spending, progressive income taxes, and other taxes; policy should intervene directly in firm and technology development to reduce or even eliminate pre-tax and pre-transfer inequality. While the encyclical rightly points to the need for policy efforts to reduce inequality, such as higher taxes on the wealthy, it is clear that this alone is not enough. Policy must intervene in the production system. Of course, that comes at the cost of innovation and productivity.

With this encyclical, a message heard around the world in tens of thousands of news stories, the 30-year effort to overthrow neoliberalism is now virtually complete. The intellectual and political project of most elites in Europe, America, and the Commonwealth nations has been to fundamentally change the economy and the way policy is conceived. Through relentless attacks, most of them based on fallacies and distortions of evidence, these elites—academics, journalists, think tank scholars, and elected officials—have succeeded in destroying neoliberalism. Only the dedicated Hayekian right now offers a full-throated defense of it. And rather than embrace a pro-innovation, pro-growth, pro-business national developmentalism as the required alternative to a failed neoliberalism, they have established a dramatically different alternative, one that the Pope’s encyclical validates.

At its core, the Pope’s encyclical is channeling Hungarian social scientist Karl Polanyi, who argued in his 1944 book The Great Transformation that markets are socially constructed and must be re-embedded in social relations rather than allowed to become self-regulating. Polanyi argued that the self-regulating market of the 19th century was not a natural evolution but a deliberate political construction. And it was inherently unstable because it treated land, labor, and money as commodities. Labor is human beings. Land is nature. Money is a social institution. Treating them as pure commodities destroys the social fabric.

This maps directly onto today’s debate about AI and work: Labor being reduced to a fungible input optimized for machine compatibility is exactly the kind of commodification Polanyi was describing. The encyclical’s language about workers losing control, work speeding up, and rigid repetitive tasks reflects this orientation.

Pope Leo frames the overarching task as whether to “construct a new Tower of Babel or to build the city in which God and humanity dwell together.” Articulated this way, it’s an easy choice. The frame happens to be faulty. But still, in his view, unregulated AI will lead to the former.

As the Pope notes, his encyclical follows a long tradition, not just in Catholicism but in Protestant denominations as well, of the “Social Doctrine of the Church.” The idea was that Christianity should be concerned not just with spiritual and individual salvation but with changing the world to make it more just and humane. The Pope writes, “Today, the Social Doctrine of the Church is a legacy of wisdom, where we find principles for thought, criteria for discernment and judgment, and concrete guidelines for action.”

To be sure, the Social Doctrine was a force for good, as it directed needed attention to real challenges emerging from industrialization in the late 1800s that needed business and government responses. But it went far beyond calling out the harms and need for change to specific policy choices, where those choices were informed not only by the goals of the Doctrine but also by its biases. This was particularly true when it sought to engage directly in public policymaking choices grounded in an equity formulation, rather than a growth-with-equity formulation.

The encyclical follows in that tradition, especially because “In recent years, it has become increasingly evident how rapidly and profoundly digitalization, artificial intelligence (AI) and robotics are transforming our world.”

On the plus side, the encyclical does not indulge in reflexive, anti-technology Luddism:

Technology should not be considered, in itself, as a force antagonistic to humanity. On the contrary, it has formed part of our history since the beginning as “a profoundly human reality, linked to the autonomy and freedom of man.”

But rather than accept that virtually all non-military technologies that are commercialized are positive—why else would people buy them?—the encyclical channels the society-and-technology frame, which holds that:

each phase of progress has also revealed the ambiguity of tools that can cause harm when not oriented toward the good. Today, however, we find ourselves facing a new situation. The power and prevalence of emerging technologies are interwoven into the fabric of daily life, shaping decision-making processes and deeply affecting the collective imagination.

In other words, without significant societal and government involvement in the development of AI, it will do more harm than good, a view the EU has held for almost a decade. That is why the Pope writes: “It is necessary to establish adequate regulatory tools capable of upholding justice and curbing the distorting effects of technological power. Nevertheless, the issue is not limited to regulation.”

To be clear, I am not positing a neoliberal alternative. For example, AI safety and explainability are important factors. But these are best achieved not by slowing down AI but by boosting funding for safety research and working with leading AI companies to ensure certain aspects are limited, such as the ability to create a bioweapon.

One reason Pope Leo argues for much more intrusive involvement is because he believes power over technology lies in the hands of a few powerful companies and individuals:

As Pope Francis warned, we must realistically ask ourselves who holds this power today and how they use it: “It must also be recognized that nuclear energy, biotechnology, information technology, knowledge of our own DNA, and many other abilities which we have acquired… have given those with the knowledge, and especially the economic resources to use them, an impressive dominance over the whole of humanity and the entire world.”…

Today, however, the main drivers of development are private, often transnational, parties that are endowed with resources and the capacity to intervene that surpass those of many Governments. Technological power thus takes on an unprecedented, predominantly “private” aspect, which makes it even more challenging to discern, govern and direct such power toward the common good.

At best, this is an exaggeration. If AI and other large technology companies are so powerful, why have the EU and other nations ignored their opposition and passed laws such as the Digital Markets Act, the AI Act, and other similar restrictions? Why have many U.S. states passed laws that tech companies opposed? Why have data center buildouts slowed in the face of public opposition?

The tech industry, including AI, is no different from any other industry. When governments want to regulate it, they do. In fact, it’s less powerful than most industries. Anyone who follows business lobbying in Washington knows that the tech industry spends relatively little, particularly relative to its size, compared with other, longer-established industries like financial services, pharmaceuticals, and even real estate agents.

The idea that technology will be bad unless guided by the wisdom of the masses leads to the social capitalist prescription of government guiding technology:

crucial questions impose themselves on our conscience and can no longer be avoided: Where are we going? Toward what goal do we wish to orient ourselves? What direction should we choose as a people and as a human community?

How about this: We just enable AI innovation and get all the amazing innovation and productivity benefits? No, that is a bad idea according to social capitalists. AI must be constrained, controlled, and constricted. A key argument they make is that if only governments had regulated social media in its infancy, we wouldn’t have the problems we do today. But what regulation would they have liked to see? A law forbidding certain kinds of speech, which would usually focus on conservative speech that many social capitalists find abhorrent?

To be sure, if there were speech controls on social media, they would reduce some kinds of objectionable speech, but they would come at the cost of one of the core components of human flourishing—the ability to speak one’s mind, even when the powerful don’t like it. We’d all end up living in the UK, where people are jailed for posts that are subjectively deemed to be “grossly offensive.”

The encyclical goes on to assert that:

Technology has the power to heal, connect, educate and protect our common home; but it can also divide, exclude and generate new forms of injustice. In the abstract, technology in and of itself is not a solution to humanity’s problems, just as it is not inherently evil. In practice, however, technology is never neutral, because it takes on the characteristics of those who devise, finance, regulate and use it. Therefore, the primary choice is not between a “yes” or “no” to technology, but rather between constructing Babel or rebuilding Jerusalem; between a power that claims to dominate the heavens and a people who work together in the presence of God to rebuild the walls of fraternal coexistence.

This is straight from the social capitalist view of technology. But it’s not right. We have always relied on consumers to make decisions about most technologies. And where there are externalities, such as pollution, discrimination, or safety hazards, government, along with the legal system (tort law, for example), provides remedies. But at least in the U.S. tradition, it doesn’t try to slow down innovation.

And so, we get to the real critique in the encyclical, which states that unfettered capitalism and its “idolatry of profit that sacrifices the weak, a uniformity that neutralizes differences, and the pretense that a single language — even a digital one — can translate everything, including the mystery of the person, into data and performance” are the real problem.

Let’s start with the idolatry of profit. How would society work if all enterprises, large and small, lost money? We would all be poorer, and there would be no future investment. So, the problem is not profits; it’s putting in place needed protections that companies must follow. Car companies make profits, but they have to design cars in ways that improve safety and reduce environmental impact. Besides, if profits are now idolized, then why are profits in the United States today no higher than they were 60 years ago, an era of more regulated capitalism?

The risk of socially directed technology is who gets to call the shots. At least in regulatory capitalism, companies design products they think consumers want to buy, and government, through legislative and administrative processes guided by law, puts up guardrails where needed.

But social capitalism wants the entire process to be driven by “the people.” Indeed, the Pope writes:

We should not be intimidated by tensions or differences because they can become creative forces when guided by shared responsibility… Indeed, this is the possibility of building together, of transforming diversity into a resource and of making listening and dialogue the common ground upon which to cultivate justice and fraternity.

While this sounds ideal, it is far from the real world. In that world, many participants in the AI debate do not have a shared responsibility. They want a radically different kind of society, as we have seen with politicians like New York Mayor Zohran Mamdani and Senator Bernie Sanders of Vermont. There is no dialogue or common ground, only camps seeking to crush their opponents through any means possible. Not to mention adversarial nations that have no interest in a shared humanity unless it is one governed by their own anti-freedom ideologies.

A governance system shaped by pure democracy, rather than republican democracy, would likely lead to lowest common denominator solutions. What if one segment of society is more organized than the others, perhaps because a bunch of guilt-ridden rich people and foundations provide massive resources to them? Is the answer they advocate for the right one simply because it was purportedly bottom-up? If it is, then welcome to a world where AI is taxed, no more data centers are built, and it’s against the law to lay workers off. That is not a world that puts humans first. It puts anti-technology, anti-business advocates first.

The encyclical goes on:

Within this shared task, Christians discover their unique role of guiding actions toward God so that, in his light, pluralism does not dissipate into disorder, but instead, through the practice of synodality, it becomes the space in which humanity rediscovers its solid foundations and its final end.

But what exactly should be done to achieve that goal? For the Church to prescribe not just overall goals but specific outcomes and policies, as the practitioners of the Social Gospel did in the late 1800s, is to risk adopting policies that seem to provide grace but do the opposite.

We see this in the statement:

when the dignity of our brothers and sisters is violated, when politics fails to address the tragedies of humanity, when the economy turns against the person or science oversteps the limits of its competence, the Church — together with other Christian denominations and believers of other religions — must make her voice heard, not in order to dominate, but to promote communion.

How has the economy turned against the person? How have functioning states failed when it comes to AI? How has science overstepped the limits of its competence? These are normative claims that serve to justify social control of technology.

I will continue the discussion next week in Part II, with a particular focus on how the encyclical addresses AI and workers.

Less hunger, cleaner water, better health care, more infrastructure, and other goals on the UN’s list can all be made possible by higher productivity. Clean water requires money. So do health care, education, energy, broadband, and highways. Any country can have these things if it can pay for them; countries can only get the money to pay for them through higher productivity.

But unsurprisingly, labor productivity in many poor and low-income countries remains low. Senegal’s productivity is just above $6 per hour. Honduras’s is roughly $8. Compare that with almost $82 in the United States and about $100 in Singapore. That’s why the most important development goal should be helping low-income countries increase productivity so they can generate the wealth needed to address national challenges.

Yet higher productivity is not one of the UN’s 17 goals. The closest is Goal 8, “Decent Work and Economic Growth.” Even there, productivity is treated as an afterthought rather than a core imperative. The goal focuses on full employment, reduced labor inequality, equitable pay, safe working environments, and improved financial services—not productivity.

Many of the goals are actually at odds with higher productivity. The goal of more clean energy is likely to lower, not raise, living standards if renewable energy continues to cost a nation more to produce than energy from fossil fuels.

Goal 12 presents a similar problem. It calls on countries to move toward more “sustainable consumption and production patterns,” which is a euphemism for consuming less. By this measure, poorer countries have already achieved the goal. And if they want kids to play with “ethical and sustainable” soccer balls, as the UN apparently thinks is important enough to merchandise, they will probably end up paying more.

The same is true of Goal 13: “Take urgent action to combat climate change and its impacts.” Urgent climate action with long-term impacts almost always costs money.

Even the UN’s social goals would be served by higher productivity. There is a clear causal relationship between national per capita productivity and women’s rights, just as there is between higher productivity and environmental protection.

So, given that productivity is the foundation for many of the UN’s Sustainable Development Goals, why did it not make the list? The answer is simple: Many of the policy elites who dominate the economic development conversation, especially those claiming to speak for the “Global South,” have long abandoned growth in favor of redistribution, now with a “green” cherry on top.

Case in point, in 2013, the UN secretary-general named economist Abhijit Banerjee, among others, as a key adviser to help develop the SDGs. This is the same economist who could write the following, with a straight face, about how to improve the lives of people in poor countries: “A higher GDP may be one way in which this [a better life] can be given to the poor, but it is only one of the ways, and there is no presumption that it is always the best one.” Surely, you are kidding me (and stop calling me Shirley).

No surprise, WEF founder Klaus Schwab had to be part of this anti-growth chorus. In his 2021 book, he writes, “We never should have made GDP growth the singular focus of policymaking. Alas, that is where we are today. GDP growth is our key measurement and has permanently slowed.” For him, the focus on growth was a “systemic design error in the Western economic development model,” and “we will have to deal with a whole basket of other problems we created while pursuing higher growth.” You mean problems like well-funded schools, cancer treatments, reliable energy, widespread car ownership, and more?

And this gets to the key factor: Grounded in the nonsense of Marxist dependency theory, UN leadership and staff too often seem to believe that growth is a plot to keep the Global South down, either by increasing inequality or by limiting developing countries’ growth. Indeed, the United Nations Conference on Trade and Development (UNCTAD) has asserted, “Every spurt of progress has been associated with sharper inequality between countries.”

This is why so many of UNCTAD’s policy proposals, such as requiring developed nations to share intellectual property and technology free of charge, are redistributionist in nature. It is also why many growth rejecters, of whom the UN has no shortage, point to Gandhi’s famous aphorism: “Live simply, so that others may simply live.” Well, at least we would have equal incomes—all of them low.

To be clear, growth in advanced economies does not come at the expense of lower-income nations; it often makes growth easier for the latter. After all, many major innovations that improve living standards globally, from modern medicines and higher-yield agricultural technologies to telecommunications networks, were developed because wealthy nations had the resources to invest in research, development, and commercialization.

Higher productivity ultimately generates the resources needed to improve health outcomes, expand educational opportunities, build resilient infrastructure, and reduce inequality. So if the UN were serious about ending poverty and improving living standards worldwide, it would make productivity growth the organizing principle of its agenda.

To actually “transform our world,” the UN should replace its 17 Sustainable Development Goals with one: boost productivity. Everything else follows from there.

Weak Arguments

Before I provide two real reasons why manufacturing matters, let me rebut five common but ultimately weak arguments.

1. “Manufacturing delivers good jobs.”

In reality, there are not that many jobs in manufacturing. U.S. manufacturing accounts for just 7.5 percent of total jobs. From 2016 to 2025, manufacturing job creation was just 2 percent of total net new jobs. Even if the United States eliminated the manufacturing trade deficit, it would maybe boost manufacturing to 10 or 11 percent of total jobs.

2. “Manufacturing jobs are good jobs.”

Are manufacturing jobs good jobs? They used to be. In the early 2000s, there was a wage premium of 3 percent for manufacturing production jobs. But according to the Federal Reserve Bank, that premium has disappeared, with wages for manufacturing production workers 5 percent below those of the rest of the private sector.

To be fair, the wage premium is more significant in rural areas, as is manufacturing’s share of total employment, suggesting that one reason to support more manufacturing is as a rural development tool. But given that rural manufacturing jobs declined between 2019 and 2023, it’s not clear how much a revived manufacturing sector would do for rural economies.

3. “Manufacturing is critical to productivity.”

Sure, manufacturing has, on average, higher value-added per worker than the rest of the U.S. economy. But if, by some miracle, America could boost manufacturing productivity twice as fast as economy-wide productivity (assuming 2 percent productivity growth for the economy and 4 percent for manufacturing), this would boost overall productivity growth by just 2.3 percent after 10 years. And even that estimate is extremely optimistic, given that manufacturing productivity actually fell from 2011 to 2019.

4. “Manufacturing is critical to innovation.”

It is. Even with the vast increase in R&D in America’s information sector (think Google, Amazon, Meta, Microsoft, etc.), the majority of U.S. R&D still occurs in manufacturing. R&D is critical because it drives innovation (e.g., the introduction of new goods and services into the market), which, by definition, improves our lives. Moreover, much has been written, correctly in my view, about the importance of the tight geographical linkage in many sectors between manufacturing, R&D, and innovation.

But here’s the rebuttal: Why can’t the United States just buy the innovative products and services it needs from other nations? If Germany produces better robots or Taiwan makes better computer chips, America can just buy them. As long as global innovation is robust, the United States is fine.

5. “Manufacturing has one of the highest economic multipliers of any U.S. industry.”

Bureau of Economic Analysis input-output tables show roughly $1.40 to $1.90 in additional output per dollar of manufacturing output, versus much lower multipliers for most other sectors of the American economy. Having said that, unless the economy is in a deep recession and policymakers want to expand demand, who cares? If the economy is close to full employment, which it usually is, multipliers are largely irrelevant.

Actual Reasons

Okay, that gets us to the two real reasons why manufacturing is important.

1. The trade deficit.

Manufacturing accounts for roughly 60 percent of U.S. goods-and-services exports despite being roughly 11 percent of GDP. Without manufacturing, the trade deficit would skyrocket even more and, in contrast to what the Adam Posens of the world might have us believe, that is not a free lunch. A large trade deficit makes Americans better off in the short run because U.S. consumption exceeds production. But unless other nations are willing to subsidize American overconsumption forever, this cannot continue indefinitely.

At some point, the value of the dollar will have to fall significantly so that Americans consume less than they produce and export the difference, thereby lowering real living standards because the United States will need to import less, consume less, and export more. Putting off that day of reckoning will only make things worse. The longer America delays that adjustment, the more debt and economic burden it passes on to future generations.

Which leads to… drum roll, please… the second and BIG reason…

2. China.

Without major structural change in U.S. policy, akin to the strategy America implemented at the beginning of the Cold War, U.S. national economic power industries, most of them manufacturing-based, will weaken significantly or die. In turn, this will diminish the U.S. defense industrial base and give China techno-economic leverage over America across a broad range of sectors, not just rare earth minerals.

The United States simply cannot afford to live in a world where it is dependent on China for jets, drugs, chips, machine tools, autos, and more. Dependence of that kind would give Beijing enormous leverage and hollow out the U.S. defense industrial base.

That means America needs a manufacturing competitiveness strategy. Not as social policy to create jobs. Not as environmental policy to create “green” products. Not as growth policy to boost productivity. But as national techno-economic security policy.

As Trump considers next steps, he should judge every proposed action and agreement in the techno-economic and trade space on one question: Does it strengthen or weaken China’s national power industries, especially vis-à-vis the United States?

If you’re wondering why, here’s the short version:

• America is at grave risk of losing leadership to China in a critical set of advanced, traded-sector industries that underpin economic strength, military capability, and geopolitical power in the 21st century—what ITIF calls “national power industries.”

• This is not normal economic competition between market economies. Competition in these industries is win-lose, and market share translates into production scale, innovation capacity, supply chain control, talent concentration, and geopolitical leverage. When China gains global market share, the United States and allied nations do not simply lose sales; they lose industrial capability.

• China’s push to dominate national power industries is not accidental. It is a carefully orchestrated, multi-decade strategic campaign backed by massive subsidies, protected domestic markets, cheap capital, forced technology transfer, and state-directed investment. The goal is to displace Western techno-economic power and reshape the global order under CCP leadership.

• How Washington responds will determine whether the U.S. maintains the advanced production and innovation capabilities necessary to be a leading global power. Incrementalism will not be enough. Nor will maintaining America’s 50-year-old system of financial capitalism.

• Domestic industrial policy alone is insufficient. Even under the best circumstances, the United States cannot fully replicate the scale, coordination, political system, or subsidy capacity behind China’s techno-economic-trade mercantilist model.

That means America must not only strengthen its own national power industries but also take steps to slow China’s progress toward global techno-economic dominance.

Which brings us back to the talks and potential agreements emerging from the Trump administration’s meetings in Beijing.

Any proposed deal in the techno-economic and trade space should be evaluated primarily through one lens: Does it help or hinder the rise of Chinese firms in industries critical to national power?

According to every major media outlet, topics on Trump and Xi’s agenda included tariffs, AI, market access for American firms in China, Taiwan and Iran, rare earths, fentanyl, and technology restrictions. Notably, Beijing hopes to extend the current trade truce and secure relief from U.S. sanctions and tech restrictions. There has also been speculation that Trump and his advisers are seeking a major investment from China, discussing a potential arrangement that would allow China to invest as much as $1 trillion in the United States to build factories and other industrial facilities.

From a short-term political or economic perspective, some of these proposals may appear attractive. But many risk advancing China’s long-term techno-economic position in ways fundamentally misaligned with U.S. strategic interests.

To start, Washington should stop treating advanced tech restrictions as ordinary bargaining chips in trade negotiations. Export controls on certain technologies exist because these industries are foundational to military power, industrial leadership, and geopolitical influence. Relieving pressure on China’s technological upgrading in exchange for temporary trade concessions or commodity purchases risks sacrificing future strategic leverage for short-term optics. The United States is not going to lose its soybean industry. But it could lose its biotech and IT equipment industries.

Similarly, large-scale Chinese investment in U.S. manufacturing should not automatically be viewed as a strategic win simply because it creates jobs or factories on American soil. Chinese investment in the United States is good for China’s strategic interests, not America’s. It lets Chinese firms destroy U.S. firms inside the tariff wall, while siphoning off U.S. intellectual property and gaining access to American industrial know-how. Trump should avoid the siren song of short-term gains and ribbon-cutting. And U.S. investment in China is good for China because it spreads knowledge and boosts local supply chains. That is why the supposed “Board of Investment” should be viewed with caution.

The same logic applies to rare earths and critical minerals. While stabilizing access to Chinese-controlled supply chains may reduce near-term disruptions, dependence itself is part of Beijing’s leverage strategy. The long-term objective should not be cheaper dependence on China, but resilient allied production capacity outside Chinese control. Toward that end, if Xi does not back away from weaponizing rare earths, Trump should threaten to impose controls on the strategic goods China depends on.

Even “market access” requires more scrutiny than Washington traditionally applies. Policies that benefit specific multinational corporations do not necessarily strengthen America’s national power industries. Too often, U.S. firms gain access to the Chinese market while China simultaneously gains technology, industrial scale, supply chain leverage, and strategic positioning that further erodes America’s competitive position. Certainly, a commitment to buy more Boeing jets, if real, is welcome. But let’s be clear: China is only doing this because it previously weaponized a Boeing boycott, which the feckless Europeans were all too happy to capitalize on through increased Airbus sales.

This is ultimately the core problem with how much of Washington still approaches economic relations with China. The United States continues to treat trade negotiations largely as transactional exercises focused on purchases, tariffs, market access, and quarterly economic outcomes. China treats them as instruments of sustained national strategy. Of course, Xi does not have to run for re-election. U.S. policymakers do, with stakes particularly high as midterm elections approach. But those in the administration still can and should act as statesmen focused on protecting America’s long-term security and national interests.

Beijing understands that strong national power industries are now central to geopolitical power. Washington increasingly says the same, but too often still negotiates as though it is competing with a normal market economy rather than a state-directed rival pursuing global techno-economic and industrial dominance.

For the last 20 years, the Chinese strategy has been to stall, buying time to avoid conflict now as they build and get stronger, and as the West gets weaker. This is what Muhammad Ali once famously called the “rope-a-dope” strategy. Trump should approach every proposal coming out of Beijing with that reality in mind.

The question is not whether a deal produces favorable headlines, temporary export gains, or short-term political wins. The question is whether it strengthens or weakens America’s long-term position in the industries that will determine global power in the decades ahead. And based on the initial reports, at least, Trump appears to have left Beijing having mostly failed on that front.

Since the end of World War II, the United States has seen itself in a role like St. Paul’s as it has taken up the mission of spreading the creed, not just of democracy and freedom, but also of free trade, which most policy elites view as a key enabler of the former. Indeed, after it became the global hegemon, the idea of free trade was something that the United States pushed with its proposal for the International Trade Organization (which Congress rejected because of concerns over sovereignty). It then championed the expansion of trade through multiple GATT rounds, and then in 1995, the creation of the World Trade Organization.

Soon after, the People’s Republic of China began to press for membership, because it knew that it needed foreign direct investment as the first phase of its development plan, and it understood that the certainty the WTO gave foreign investors was critical.

And so, the Clinton administration came to promote China’s accession, successfully urging Congress to pass permanent normal trade relations (PNTR) with China in 2000, which helped pave the way for China to join the WTO in 2001

But why did policymakers agree to all this, especially given that China was, and is, a socialist economy? The easy answer is corporate lobbying, as companies wanted access to Chinese markets for sales and production. But while lobbying matters, U.S. policymakers are not completely subject to lobbying forces. The reality is that most of the supporters of PNTR actually believed it to be in U.S. interests.

Why was that?

One reason was that they took the PRC’s promises seriously. U.S. officials treated these commitments as if would any other commitments from a democratic, rule-of-law nation. This is why the U.S. Trade Representative could write that the agreement would prohibit technology-transfer requirements on foreign companies seeking to do business in China; make the PRC radically reduce its rampant intellectual property theft; identify and reduce industrial subsidies; and treat state-owned enterprises no differently than foreign enterprises. None of which happened.

To be sure, if China had actually been serious about meeting those commitments, the harm that China’s rise did to U.S. manufacturing would have been dramatically reduced. But in hindsight, you have to ask, “what were they smoking” to actually take PRC officials at their word. Any China scholar knew that since the rise of Chinese Communist Party in the 1930s, their stated commitments could not be counted on reliably.

This is especially interesting given the fact that Long Yongtu, China’s chief negotiator for WTO accession, said in an interview in May, “When we promised to adopt a market economy, we made it absolutely clear that it would be a socialist market economy.” Maybe U.S. negotiators only heard the last two words, or maybe they thought it would at least be better than a socialist command economy.

The Failure of WTO Enforcement

Some defenders of the PNTR decision will argue they didn’t have to believe the Chinese promises of pink unicorns; they were relying on the WTO to hold China’s feet to the fire. Indeed, the belief was that the WTO system would be so powerful that member nations would be forced to become not only free traders (something China has never sought to be), but also part of the Western liberal order. The reality turned out to be that once the Chinese wolves were let in the WTO henhouse, real enforcement was impossible.

This was true for at least two reasons. First, most of what the PRC did to gain unfair advantage through non-market means was “off the books.” The CCP knew that if they codified these practices into law or regulations, it could be used against them at the WTO, so they used informal administrative procedures and “guidance” that got around the WTO rules. This is why a CCP official could say to me with a straight face that China does not require tech transfer for market access. If he means that the PRC has no law requiring it, he’s right. If he means that the CCP doesn’t require it, he’s lying.

Second, U.S. and WTO trade enforcement both ultimately depend on aggrieved parties bringing cases. In the Senate proceedings on the vote, Senator Frank Lautenberg (D-NJ) stated:

Through China’s WTO accession and the establishment of PNTR, we will be able to hold China accountable for its trade commitments through the WTO’s transparent, rules-based dispute settlement mechanisms. If China arbitrarily increases a tariff on an American product or engages in retaliatory actions against the U.S., we could seek redress under WTO regulations… But if we fail to grant PNTR for China, WTO dispute mechanisms will not be available to us.

But U.S. companies quickly learned that if they asked USTR to bring a WTO case, the CCP’s punishment would be swift and severe. So, like any rational actor, they kept their heads down and just took it. As Harry Broadband, Assistant U.S. Trade Representative from 1991 to 1993, stated:

A lot of U.S. firms would come to us and they would complain about Chinese [imports] and say that we had to put in place safeguards, but they’d always add, ‘Don’t tell the Chinese that we came to you and told you this!’ … They knew that if we started punishing the Chinese in a particular sector, they were going to know that it was Company X and Company Y [that complained].

But with any level of understanding of the CCP’s history and operations, both of these behaviors (guidance rather than laws, and mafia-like threats to complainers) and more, should not have been a surprise.

First-Order Thinking

Another reason U.S. policymakers had faith in PNTR was first-order thinking, which went like this: China has high tariffs. With PNTR and WTO, they will have low tariffs. Ipso facto, U.S. exports will go up.

But these believers overlooked three key factors. First, opening up China’s markets also meant opening up our markets. In theory, this should increase both U.S. exports and imports, so the net employment effect on the United States should be zero. But they seem to have overlooked the import part.

They particularly overlooked the offshoring and import part. There was virtually no discussion during the Senate speeches on PNTR that one major result would be American firms moving production to China for export back to the United States. If anything, the view was that low tariffs on exports to China would lead to more production in the United States. Senator Kit Bond’s (R-MO) comments reflected that rosy scenario:

The benefits are not limited to agriculture, despite what has been argued, benefits do extend to manufacturing and other sectors. For example, one company in my state, Copeland, a division of Emerson Electric, manufactures air conditioner compressors in the wonderful town of Ava, MO. Those compressors are sent to China where they are incorporated in units sold all over Asia. As the market for air conditioners in Asia has expanded, the number of manufacturing jobs in Ava have grown. Those jobs will not go to China and if this agreement is passed the manufacturing jobs in the Ava facility are expected to double.

After China was let in the WTO, Copeland proceeded to establish 3 factories in China and multiple R&D facilities.

Third, policymakers over indexed on tariffs. Tariffs are only a small part of how a country can unfairly boost its trade surplus. Devaluing its currency usually has even larger effects, something China did with abandon. As do industrial subsidies, which as Haley and Haley have shown were massive and played key roles in China becoming a manufacturing powerhouse. As does IP theft and forced tech transfer.

Fourth, policy makers thought free trade was the end in and of itself and it was America’s manifest destiny to bring not only democracy to the world, but free trade. In the senate debate over PNTR, Senator Mike DeWine (R-OH) stated:

The fact is, as we all know, the United States is a leader in the area of free trade. If we fail to pass the PNTR legislation, we would be sending a signal to the world that the United States wants to isolate China. That’s a signal we don’t want to send. Both by word and deed, the United States must be the world’s leader in promoting free trade.

It was never clear why the United States needed to be the leader, although history makes it clear that presidential administrations, supported by the State Department, have long been willing to sacrifice U.S. techno-industrial capabilities for the foreign policy goals of ensuring global democracy and free markets. Many of the key advocates for PNTR, including President Clinton, used foreign policy arguments to justify it. Senator Durbin (D-IL), in explaining his support for PNTR stated, “Trade is the future. Make no mistake about it: trade can open up the exchange of ideas—ideas like democracy, freedom of speech, freedom to worship, and freedom of association.”

In other words, the U.S. goal was to help China become freer. The hope was that economic liberalization would pave the way for political reforms and a greater alignment with democratic values and institutions. Indeed, virtually all the Senate opposition was based on concerns for human rights in China, not on whether the deal would be good for U.S. techno-economic capabilities and strength.

Fifth, policymakers assumed continuing U.S. tech dominance. This was after all, the late 1990s, when the U.S. technology boom was in full swing: Intel, IBM, Lucent, Microsoft, Motorola, and others. China, in contrast, could hardly afford bicycles. So, consistent with conventional trade theory—something PRC leaders never accepted—the agreement would allow the United States to specialize in high-tech, high-value goods and services, while China would supply us with t-shirts and Happy Meal toys. The fact that Chinese unfair competition helped weaken or kill Intel, IBM, Lucent, and Motorola appears to be conveniently glossed over.

Water Over the Bridge

As they say, this is all water under the bridge—or, more like water from a broken dam that destroyed the bridge. What is done is done.

The key question is, can we learn from those mistakes going forward? Yes, there are three main lessons, none of which the Trump administration appears to be taking to heart.

First, U.S. policymakers, pundits, and journalists need to be much better at thinking two, three, or even four moves ahead of our adversaries. Simply repeating bromides like “trade is the future” does not cut it. Nor does unreflectively sticking to team loyalties. (“I am against Trump, so I will continue to repeat globalist bromides.”)

Second, policy processes, both in Congress and in administrations, need to be much more deliberate and averse to group think. Whether this entails formal red and blue teaming or other mechanisms to encourage airing a wide variety of expert views, the USG needs to become much better at this. Current interagency processes fall far short.

Third, trade policy has been dominated by lawyers: The task was to eliminate trade barriers, which are still believed to be laws and regulations, so lawyers were the ones who you wanted to lead the charge. But while lawyers can tell you if a contract is good or not, they can’t tell you if it’s the right contract.

Case in point. If trade policy in the 1990s had been led by techno-economic industrial policy strategists, one of the things they surely would have pointed out (if they were any good) was that manufacturing tends toward agglomeration, and if a nation like China could gain adequate momentum—which it has thanks to low costs, forced foreign direct investment and tech transfer, and a global free trade regime that prevents other nations from taking action against unfair practices—it could lead to a vicious cycle where China first becomes the global manufacturing powerhouse and then graduates to become the global innovation leader (as we are now seeing). Meanwhile, other former leaders, including the United States, would lose capabilities, including in the industrial commons, and suffer largely irreversible techno-industrial decline. But individuals with those insights and capabilities were few and far between in the federal government (and they remain so), and to the extent they are there at all, they are like Milton in Office Space, stuck in the basement without his stapler.

Finally, it’s time once and for all to end utopian globalist thinking about free trade. It was a wonderful John Lennon-like vision, one that even looked attainable after the fall of the Soviet Union. But until the PRC is replaced by a true democracy, global free trade will be impossible. They will simply not play by fair rules.

As such, we will need to go back to a pre-1990 trade regime, with the free world economically integrated, and the Communist world limited. That doesn’t mean the same level of isolation that was imposed on the Soviet Union. But it does mean replacing free trade, not with Trumpian protectionism, but with strategic international economic relations. That will be the subject of a forthcoming post.

He distinguished it from “uncreative destruction,” which might destroy a nation’s productive assets through natural disasters, wars, predatory foreign trade policies (China, I’m looking at you), or broader societal decay and limited reinvestment.

Creative destruction, on the other hand, refers to assets being destroyed, either physically or monetarily, because a more effective and innovative alternative has emerged.

The most iconic example of creative destruction—the transformation of England’s textile industry from a cottage industry—was not driven by war, but by the introduction of cutting-edge machinery, primarily the spinning jenny, water frame, and power loom. These innovations destroyed many rural jobs, but they also significantly improved living standards, allowing ordinary Brits to afford clothing. It also gave us the term “Luddite.”

Likewise, we didn’t lose massive numbers of horses in the early twentieth century because of some equine disease; we lost them because people stopped buying horses and started buying cars.

But a natural reaction to this process, one that’s common in dynamic societies, particularly among people high on the empathy scale (e.g., “Caretakers”), is to ask: Can’t we have growth without destruction? We see this today in debates over AI and robotics, where empathic Caretakers (I’m exempting the pure Luddites from this conversation) want to limit job-replacing technologies and allow only those that complement workers.

To be sure, that would reduce some layoffs, a plus for Caretakers. But it wouldn’t eliminate them. Why would an organization invest in AI, robotics, or any other capital equipment—even if it complements workers—if not to boost production and cut costs? Otherwise, where does the return come from?

That means even worker-complementing technologies will still raise efficiency, just not as much as job-replacing technology, and firms will employ at least somewhat fewer workers. Even if a company could expand its market share without any layoffs, the firms losing that share would have to let workers go.

But the reality, at least to hard-hearted realists (me, I’m looking at me), is that job-replacing technology generates more growth. Would we be richer or poorer if the automatic electric switchboard hadn’t been developed and telephone companies continued to rely on manual operators to connect calls? Would we be richer or poorer if we had given longshoremen better winches instead of adopting the standardized shipping container? Would we be richer or poorer if airline ticket agents had better computers but passengers were not allowed to check in for flights on their smartphones? Hint: poorer.

Given this dichotomy between Caretakers and hard-hearted realists, is there any way to square the circle? Thankfully, there is—if Caretakers are willing to accept some pain and realists are willing to show some compassion. In this ideal world, creative destruction would not be opposed; in fact, it would be encouraged. But individual workers who are hurt would be helped to transition to new opportunities.

Perhaps the closest real-world example to this ideal is found in the Nordic countries. While generally supporting creative destruction (albeit less so than the United States), these nations do an excellent job of helping workers transition between jobs through their “flexicurity” model, which balances flexible hiring and firing rules with generous unemployment benefits and active labor market policies.

It would be nice if we had precise measures of a nation’s acceptance of or resistance to creative destruction. But in their absence, I have sketched the following conceptual framework (see figure 1). The x-axis represents the degree to which countries resist creative destruction, based in part on how difficult it is to fire workers and partly on my admittedly subjective evaluation. The y-axis represents the degree to which countries act as Caretakers (e.g., helping workers transition) versus hard-hearted realists (e.g., leaving workers more on their own), based largely on the share of income replaced for laid-off workers after one year.

So, the farther right a nation is on the x-axis, the more it resists creative destruction. And the higher up a nation is on the y-axis, the more support it provides to workers affected by disruption.

Needless to say, the upper-left quadrant is the place to be: low resistance to creative destruction, high growth, and reduced individual hardship from disruption. Think Denmark, Finland, and Sweden, although rising levels of non-EU immigration are prompting renewed debates about the sustainability of their generous welfare systems. And even though these countries are generally more accepting of creative destruction than their European neighbors to the south, they could still move somewhat closer to the U.S. model.

Nations in the upper right generally resist creative destruction—they would rather generate growth by adding new capacity (e.g., building an R&D lab or a chip fab) than by displacing incumbents (e.g., supporting the taxi industry versus ride-sharing apps)—while still providing generous support to displaced workers. Think Belgium, France, Germany, Italy, and Spain. Unfortunately, these countries, rather than the EU nations in the upper-left quadrant, tend to dominate the European government, which is a big reason EU policy is often hostile to creative destruction.

Countries in the lower left are generally comfortable with creative destruction and typically view workers hurt by it as on their own, providing relatively little support. No advanced economy does nothing to help displaced workers, but many don’t do much, and some do even less than others. Enter the United States. Although Luddite forces are sadly gaining ground rapidly, pushing to move the United States toward the lower-right quadrant (resistance to creative destruction, coupled with low worker support)—or, in some cases, toward the upper right via universal basic income (while still resisting creative destruction)—the current system still leans toward growth first, support second. Other countries here include the United Kingdom, Canada, and Australia.

The lower-right quadrant is arguably the worst place to be, at least in terms of creative destruction. It’s the worst of both worlds: These countries are okay with new technologies, as long as no one loses a job (leading them to resist creative destruction, despite enjoying its outcomes), and they don’t provide much assistance for workers hurt by change. Specifically, when disruption occurs, they provide less support than continental European nations. Think Japan and South Korea.

One final note. It’s not clear that even if the United States significantly improved its system for helping dislocated workers—as ITIF has proposed—the growing, increasingly strident chorus opposing technologically driven creative destruction, particularly from AI and robotics, would suddenly take a breath and quiet down.

I’d like to believe that better support would buy more political tolerance for disruption, but I remain skeptical. Ludditism is just too fashionable and too individually rewarding for its advocates now.

So yes, Congress should move the U.S. worker adjustment system closer to the Nordic model. But at the same time, supporters of growth must be prepared to fight politically, rhetorically, and intellectually to preserve America’s comparative advantage in embracing creative destruction.

So, thunder struck, and lo and behold, the temple on high now appears to concede that industrial policy might be okay, at least for lower-income nations. The new tablet, in the form of a report titled Industrial Policy for Development, is supposed to represent a turning point—and an apology from the temple hierarchy for getting it wrong.

Like I said, the World Bank’s departure from orthodoxy created panic among the faithful. Free market ideologues are pissed:

• The Wall Street Journal writes that the “World Bank embraces industrial policy, abandoning three decades of stigma.”

• Reason, the nation’s largest libertarian magazine, says that the World Bank “used to champion markets. Now it’s surrendering to state-led industrialization”; oh, the horror.

• The Washington Post’s now free market-focused editorial board is appalled, declaring that “industrial policy won’t work.”

Okay, calm down. Don’t get your knickers in a twist.

First, if the journalists had actually read the report, they would have found that it is largely a wolf in sheep’s clothing. Not to worry: The World Bank is still committed to its old ideological ways. Sure, it writes that nations can try industrial policy. But it also claims that even if they get it right, it has almost no positive effects, apparently boosting GDP by at most 1 percent.

Second, if countries are desperate for growth, the report says to go ahead and dabble in industrial policy for a few years—but then, by all means, get back to the tried-and-true free market “fundamentals,” like macroeconomic stability and a good business climate.

The report’s key box on industrial policy advice says it all. In order of priority, governments should:

1. Not pursue industrial policy; they should just focus on getting the fundamentals right.

2. Spend little money if they insist on going down this path (that way, they’ll do the least harm).

3. Provide market incentives.

4. Not engage in macroeconomic policies like exchange rate devaluation, even if it makes their manufacturing sectors uncompetitive.

And amazingly, the report states, “More research is needed to understand whether and when general tax credits for research and development in private businesses translate into valuable inventions.”

What? You mean more than 30 years of research, with hundreds of academic studies showing that they do work, doesn’t suffice? Clearly not to the World Bank, which seems to be waiting for a study that says R&D credits don’t work.

Plus, the Bank suggests that while countries may want to pursue industrial policy, they are likely too incompetent to execute it effectively. The fact that some, if not many, governments have not gotten industrial policy right—and the theory and evidence of what constitutes doing it “right” are very clear—leads it to conclude they should avoid it altogether.

This is a bit like saying a bunch of countries got monetary theory wrong, so get rid of your central bank. Or, since various nations failed to properly support education, you might as well do away with your education ministry.

The World Bank chief economist closes his foreword by essentially saying: If you must do this malpractice, don’t say we didn’t caution you first. He writes that the report “warns every government—poor, middle income, or rich—that when it comes to industrial policy, its reach can easily exceed its grasp.”

You can almost hear their anguish and moans. “Damn, we have to say something good about industrial policy. All the countries we help are demanding that we give them something. But we really don’t want to.” You could see them working till the pips squeak.

Let’s be perfectly clear. Despite the patina of economic science, this is simply ideology speaking. Nothing more. The Bank believed then, and continues to believe now, that market failures are very rare (except perhaps pollution), and that government failures are endemic. So, there is nothing countries can do except get out of the way and enable the full working of market forces.

This ignores the theory and evidence that demonstrate why this is wrong, as generations of non-neoclassical economists have advised. These endogenous growth economists, neo-Schumpeterians, institutionalists, and innovation economists have a long and distinguished body of academic work that rebuts and effectively refutes this ideological position. Amazing scholars like Sidney Winter, Richard Nelson, and Richard Lipsey have been treated as heretics by the priesthood and systematically excluded from the establishment.

Which gets me to my main point: World Bank, you screwed up. Not just a bit, but a lot. You led so many countries down the wrong path, and that led to limited growth. Countries that ignored you, like Taiwan, Singapore, South Korea, and, of course, China, prospered.

Chinese policymakers embraced national developmentalism based on Friedrich List and Joseph Schumpeter, rejecting Adam Smith and David Ricardo. As a result, they not only grew dramatically but also sucked up much of the world’s manufacturing oxygen and deindustrialized large parts of the developing world, probably for at least the next half century.

Indeed, China is trying to consign the Global South to Ricardian comparative advantage: Sell us your food, minerals, and energy, and we will sell you advanced goods. To which World Bank economists cheer and say, “Ah, see free markets and globalization at work.” At least the IMF has a few economists who really understand industrial policy and are allowed to write about it.

It’s not great to be wrong for a generation. But at least have the courage to say you were wrong—which this report fails to do.

Let’s be honest: The World Bank won’t change its ideological religion or the terrible advice it continues to give. Only the creation of a new institution, guided by new growth theory and national developmentalism, will result in change. And that certainly won’t happen as long as China and the United States control the Bank.

China wants the Bank to continue to preach Ricardian economics so it doesn’t face competitors in the Global South. And the U.S. is too ideological to know that neoclassical economics is a failure. So, the result is that the Global South turns to China for advice, seeing how it was one of the few countries that broke out of the low-income trap. Except they don’t know that China has no interest in helping them. And developing nations keep struggling.

Nah, just kidding. Not going to happen, even though masses of pundits, journalists, economists, and think tankers have jumped on this cool-kid bandwagon to sound the alarm.

One paper published by Brookings—which, by the way, proposes taxing AI to slow it down—argues that “rising automation of intelligence tasks increases and then decreases wages.” In other words, the economy expands significantly, but wages go down.

How do we know they’re correct? Easy, they use cool math like: dγ/dL = ∂γ/∂P · dP/dL + ∂γ/∂I · dI/dL. Case closed.

Here is my math: G × (1 + p) = G1, where G is output, p is the rate of productivity growth, and G1 is the size of the economy after productivity growth.

Another paper, by Philip Trammell and Anton Korinek, the latter an economist who seems to make a living scaring people about AI, also uses elaborate math to conclude that, because of that damned AI, wage inequality may grow such that many people cannot earn enough labor income to live on. Well, that doesn’t sound so bad.

And the media laps this stuff up. Dustin Guastella’s The Guardian headline reads, “AI will make the rich unfathomably richer. Is this really what we want?” I don’t know, Dustin. Let me think about that. NPR’s Morning Edition tells us that “AI could widen the wealth gap.” You get the idea.

Here’s why all this is, at worst, wrong and, at best, vastly overstated. There are at least three theories underlying the case that AI will exacerbate inequality.

The first is that only a few companies will control the AI means of production. And since they will have an oligopoly, they will make massive profits. Imagine that, because of AI, GDP could magically rise from $27 trillion to $100 trillion by 2050 (it won’t happen, but let’s pretend). In the wealth-gap alarmists’ world, the three or four AI companies would pocket profits north of $75 trillion per year. Right.

This is obviously far-fetched, but it’s worth explaining why. There will still be car companies, hotel companies, insurance companies, consulting firms, and—dare I say—think tanks. While most may use AI to boost productivity, they will be purchasing it from companies that must compete for their business. So AI companies won’t be producing everything and capturing all the profits; they’ll be producing a tool that other companies use. Moreover, these AI giants will have to compete for customers, which means their profits, while likely robust, will still be constrained.

If that first scenario is science fiction, the next one is no less so: the idea that AI will do all jobs. You know the story everyone tells today—workers are left destitute, and if their AI overlords are feeling generous, they let governments redistribute some of their exorbitant wealth to the masses through universal basic income.

This won’t happen. For now, consider undertakers, kindergarten teachers, plumbers, police officers, firefighters, chefs, nurses, dentists, and carpenters. Regardless of how capable robots become (and they still have a very long way to go before handling jobs of this complexity, whatever Elon Musk may claim), they will not be doing these jobs. Automation may eliminate some roles, but that drives down prices, giving people more purchasing power to spend on other things, which in turn creates compensating jobs elsewhere.

Okay, setting aside these two far-fetched theories, there are more plausible ones. The third scenario, again from Brookings, is that “AI could increase inequality by giving a stronger productivity boost to already highly-paid knowledge workers, while leaving many lower-skilled workers in in-person service and manual labor jobs behind.”

But they have it backwards. Eliminating half the high-wage jobs—think lawyers, consultants, and psychiatrists—would actually reduce inequality, because it would mean that middle- and lower-income people can pay less for services currently provided by high earners, and there would simply be fewer workers earning those high incomes.

Besides, income inequality is not really driven by the fact that your doctor earns half a million a year; it’s driven by the fact that an NBA star earns $50 million and a hedge fund manager earns $500 million. Income inequality is, first and foremost, a winner-take-all phenomenon. AI won’t change that, unless we can automate the obscenely rich stock-trading class.

In the meantime, let’s scratch this AI fear off the list. It’s not like the AI doomers lack discussion topics. They clearly have plenty more they can turn into TED Talks.

The message from Brussels has been clear: Large U.S. tech companies have no right to give European consumers and businesses what they want. Only less innovative EU companies can do that.

You know what? We Americans agree with this principle completely. Which is why we are insisting on the immediate investigation and regulation of what we call “Big Spread,” including the potential breakup of Nutella.

It’s time for spread sovereignty.

As former FTC Chair Theory Britannia recently wrote:

As individuals, we spend four to five hours a day engaging with the delights of hazelnut-chocolate spread, from bread and pastries to eating it straight out of the jar late at night. It is essential, therefore, that we have control over how the spread space is organized, structured, and regulated.

Hear, hear! I mean, consider the facts. Ferrero, an Italian corporation that started in the small town of Alba, Piedmont, with nothing but a big dream—and now operates as a global powerhouse headquartered in Luxembourg—has achieved a stranglehold over the American breakfast table that would make Mark Zuckerberg blush.

There is no meaningful domestic competitor. American children have been algorithmically—or rather, hazelnutically—nudged into Nutella dependency from an early age. Parents report feeling unable to switch from that mouthwatering spread. Indeed, the switching costs are enormous.

Try telling a nine-year-old to use organic American almond butter. You cannot.

And let’s be clear: this is “Big Spread.” Ferrero has roughly quadrupled its sales since 2018, when it already held a dominant position in the expanding U.S. spread market.

Where is the American Nutella? It does not exist. Ferrero has used its dominant market position, its network effects (once Nutella enters a household, it spreads—literally), and its addictive interface design (that distinctive jar, seamlessly optimized for hands of all sizes) to crush any domestic alternative before it could scale. And where it could not, it bought competitors up through classic “killer acquisitions.”

This is precisely the behavior Brussels claims to find intolerable when Americans do it.

Google offers other search engines. Apple allows third-party browsers. But Nutella? Name one open-jar competitor with equivalent market penetration. Once again, you cannot. The hazelnut-chocolate spread market is a de facto monopoly, and Washington has done nothing about it.

The national security implications alone should trigger a CFIUS review. Ferrero controls the morning mood of millions of Americans, ages five to ninety-five. And he who controls breakfast controls the workforce pipeline. Europe knows this! That’s why they kept the good stuff and exported the rest here.

We are not against trade. We are not against hazelnut-chocolate deliciousness. We are simply asking for the same standard to be applied in both directions.

If European regulators can demand that American companies interoperate, open their platforms, and face structural remedies for dominance, surely American regulators can demand that Nutella jars carry a label reading: “This product was produced by a foreign monopolist with zero domestic alternatives. The FTC is aware.”

But the FTC needs to do more than be aware. We need a “Spread Services Tax,” under which large foreign spread companies would pay 5 percent of their U.S. revenues to the federal government.

Congress needs to pass a Hazelnut Products Agreement (HPA) that designates sellers with annual sales above $2 billion as “gatekeepers.” With that designation would come obligations, meaning they could no longer discriminate against America’s mom-and-pop spread businesses. This would require mandatory disclosure of their recipe and customer list to any American hazelnut-chocolate spread provider. And if they are found in violation, the FTC would have the authority to fine them up to 5 percent of their global revenues.

In addition, legislation should charge the FTC with bringing cases against any spread firm that has acquired American companies in the past decade with the intent of rescinding those mergers. Do Americans want long-admired companies like Keebler and Butterfinger to be owned by foreign corporations?

And of course, Ferrero and the other European monopolists want us to abandon our hard-fought regulatory protections for American consumers. That is why we need to make it illegal for foreign spread companies to scrape publicly available images of Americans enjoying Nutella, because, as we all know, those images will be used in breakfast recognition databases that identify us.

Like Theory Britannia said:

America’s vast spread market is open to all. But those who want to benefit from it must abide by our conditions. If our trading partners have no respect for the rules, then they have no access to the market.

To be sure, Ferrero invests heavily in the United States, spending more than $5 billion over the past five years on North American manufacturing and logistics to support its growth. Since 2020, it has invested in a new innovation center and R&D labs in Chicago, expanded its manufacturing plant in Illinois, built three new distribution centers across the United States, and expanded its corporate headquarters in New Jersey.

But none of that changes the fundamental problem: Ferrero is not American-owned. We need spread sovereignty.

With no global Big Spread leaders of our own, the United States must now combine ambitious regulation with massive infrastructure investment, sovereign innovation, and talent development.

Critics say this effort would waste billions by replicating existing products and technologies, tie up our best engineers, and deliver no real strategic impact. Some even argue that the United States’ resources would be better spent on R&D in critical sectors where it could scale and eventually lead.

I say those critics aren’t thinking very critically. Spread sovereignty will allow us to regain control over our infrastructure, reduce dependence on foreign actors, and protect our fundamental rights. We must resist external pressure and assert the strength of our sovereign industry.

Until then, Europe will continue spreading—across our toast, across our children’s lunches, and, apparently, across our digital regulatory vocabulary too—its dominance in the United States and around the world.

(The author of this article accepts no funding from Jif, Skippy, or any hazelnut-chocolate lobby. Yet.)

Good news, of course. Europe is finally waking up to the fact that it has serious innovation, competitiveness, and productivity challenges—what the 2024 Draghi report calls “an existential challenge.” The bad news? Very few European leaders are willing to acknowledge that Europe’s problems are caused by its social democratic worldview. Until that changes, not much else will.

The Draghi report essentially says the EU badly needs growth so it can continue doing what it has been doing. I hate to be the bearer of bad news once again, but it doesn’t work that way. Growth requires change. It is not manna from heaven that lets you keep your poor, non-growth habits.

The report states:

If Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions.

The right statement would have been: “If Europe wants to become more productive, we will have to choose.” Choose between the precautionary principle and the innovation principle. Choose between a large social safety net and a competitive business environment. Choose between stability and creative destruction. Choose between a comfortable petit bourgeois commercial sector and a rough-and-tumble, mega-corporate sector that can fight and win in global markets, especially against China. Choose between America and China.

The report goes on to wax eloquently about:

Europe’s fundamental values are prosperity, equity, freedom, peace and democracy in a sustainable environment. The EU exists to ensure that Europeans can always benefit from these fundamental rights. If Europe can no longer provide them to its people – or has to trade off one against the other – it will have lost its reason for being.

I thought Europe’s fundamental values, at least since the Enlightenment, were rationality, scientific progress, industrial development, and wealth creation. So the better question is not whether it will have to make trade-offs, it will, but whether Europe continues to degrade into a deindustrialized tourism economy marketing its Middle Ages cathedrals and quaint urban squares. If it does, what will Europe’s reason for being be?

Once you set the terms of debate by putting much of the needed change off base for consideration—as violations of Europe’s fundamental values—all that is left is technocratic tinkering. Everything meaningful has been defined as anti-Europe.

Of course, the number one “tinker” is the single market. During a speech last November, European Central Bank President Christine Lagarde said that EU growth was slowing (from a business-cycle, not productivity, perspective) and that the answer was more cowbell. Sorry, I couldn’t resist: more single market. How many years does it take to get there? You’ve been at it since at least 1951 with the European Coal and Steel Community. Either force it on the member states now or just admit they don’t want one and move on to things you can actually do.

As for the Draghi report, it highlights three goals to “reignite sustainable growth.”

“First, and most importantly, Europe must profoundly refocus its collective efforts on closing the innovation gap with the US and China, especially in advanced technologies.”

Ah, yeah… did you see the memo about this? To close that gap, Europe actually has to abandon its ambivalence toward these technologies and embrace the creative destruction that comes with them. It also needs to stop believing that the EU regulatory juggernaut is a growth engine. In reality, it is a Sisyphean task to try to catch up with America and China in digital technologies like cloud computing, internet search, social media, and the like. You are so far behind that your efforts will fail, diverting human, political, and financial capital from areas where Europe could really lead, such as biotechnology, automotive, robotics, advanced chemicals, and more.

“The second area for action is a joint plan for decarbonization and competitiveness.”

This is like calling for a joint plan to eat more hamburgers and reduce heart disease. However noble the EU’s intentions to save the world from climate change, this is a plan for non-competitiveness. By raising EU energy costs and shackling EU producers with a multitude of restrictions, EU exporting firms, especially energy-intensive ones, will continue to lose market share, and EU productivity in the energy sector will fall. Saying that decarbonization is a growth strategy does not make it one.

“The third area for action is increasing security and reducing dependencies.”

This goal is even more hollow. While the report doesn’t come right out and say it, it effectively calls for independence from both the Chinese Communist Party and the U.S. Republican Party. Good luck with that. After China takes most of your auto, chemical, machine tool, biopharma, and electrical equipment market share, dependency on America for internet applications will be the least of your worries. Besides naively treating America and China as equal threats, this “reducing dependency” strategy means not only wasting money on sectors that Europe should be trading with the free world for (like many advanced logic and GPU chips) but also diverting attention from building on the EU’s actual strengths to drive specialization and global leadership.

When it comes to what to do, the report is more of the same. “First,” the report calls out that “Europe is lacking focus.” No kidding, but the real question is why Europe lacks focus. It is not because of a lack of widespread understanding of its challenges. The Draghi report is just one in a long line of op-eds, books, and reports that have called attention to them.

There is little focus because the political base doesn’t want to focus on competitiveness, productivity, and innovation. It wants a stronger social safety net. More climate regulation. More subsidies and protections for small companies. Keeping farmers happy. Regulating pretty much everything, even technologies barely emerging from the lab. Making sure everyone everywhere gets their piece of the Brussels pie so the Union doesn’t fall apart. And of course, blaming the Americans.

The problem is not focus; it is fundamental orientation and a rigid commitment to a fantasy world. The reality is that Europe’s idea of a growth policy is to slightly reduce its resistance to growth and digital disruption. It is to slightly reduce its restraints on business and innovators. It is to prosecute American tech companies just a bit less.

Europe’s idea of a growth policy is certainly not—to paraphrase Martin Wiener’s 2004 book, English Culture and the Decline of the Industrial Spirit, 1850-1980—to worship size, speed, digitalization, and money. (For more on the role culture plays in economic strategy and digitalization today, see my two-part post from February.) At its core, the EU reflects a general ambivalence toward the digital economy and society, which dampens rather than promotes digital transformation. For Europe, the digital glass is always half empty.

As such, all the talk in the Draghi report is nice, but it misses the point. The EU will not change unless there is a broad-based, fundamental change in how it sees itself in the world economy. The single most important thing European elites can do is recognize that they no longer live in a world where they can be “price makers.” In other words, leaders in Brussels and the national capitals have long deluded themselves into thinking they could create a globally dominant Europe that replaces the crass American hegemon. A Europe so big and powerful that it could ignore the requirements of a competitive business climate (including avoiding innovation-crushing regulations and the climate “hair shirt”).

EU leaders have also convinced themselves that social democratic policies expanding redistribution and regulation are pro-growth. In recent years, the EU has gone even further, believing it can export this model globally and establish its social democratic utopia as the dominant paradigm—with Europe at the center. Abandoning that dream is painful, to say the least, which is why Europe shows so few signs of change.

Indeed, the prevailing view is: “No need for us to change, especially not to become like those libertarian, gun-toting Americans. We will change the world, not America or China.” The Draghi report is ultimately a call for growth so that this EU utopian project will have the heft to succeed. More growth means change can be avoided. But let’s be clear, the project was doomed in a world where countries compete intensely for technological leadership. Few countries want to self-impose the EU’s shackles.

And while many are happy to take some EU subsidies, they will not be constrained by the EU’s “no-growth” regulatory model. Even worse for the EU’s utopian ambitions, the new “price maker” is China, which is outright hostile to the EU project and everything it represents. Unless the EU jettisons its noble but futile yearnings, it risks becoming a vassal state to Beijing. Enjoy your “prosperity, equity, freedom, peace, and democracy” then.

China, in particular, should serve as the wake-up call. Europe failed to fully integrate. It clung to the belief that social democratic economics was not a recipe for stagnation. It opposed large corporations and idolized small, independent (and often unproductive) firms. It tried to win in digital industries where it had little chance, and in the process became reflexively anti-American. Now, Europe is not just losing; it is falling behind decisively. And it is China, not the United States, that is outcompeting it.

The bottom line is that fixing the EU’s productivity, innovation, and competitiveness crisis will require more than speeches from neoclassical economists like Lagarde or reports from social democratic technocrats like Draghi. It will require a fundamental political reorientation.

Alas, as the failures of social democratic, socialist, and green policy visions become more evident each year (including the shortcomings of mass immigration), the alternative emerging in Europe seems to be a hard-right nationalist reaction, one that looks increasingly Trumpian in its competitiveness thinking (e.g., deregulation, expanded energy production, protectionism). But these movements do not seem interested in supporting what Europe truly needs either: a centrist, national developmentalist agenda that accepts the world as it is; aligns with the United States to preserve freedom and democracy; and fully embraces, with enthusiasm, creative destruction, rapid innovation, and robust economic growth.

Until Europe makes that shift, it will remain stuck—and we can expect more Draghi reports, more tinkering, and, ultimately, more decline.

According to the neo-Luddite chattering classes, AI is going to kill entry-level jobs. Most people no longer buy the panic that AI will kill all jobs, so the new panic is that it will kill most entry-level jobs.

Just imagine: You’ve paid tens of thousands of dollars to send your kid to college, and now they’re living in your basement, unemployed.

• Former Transportation Secretary Pete Buttigieg warns that “not in 30 or 40 years, but in three or four, half of the entry-level jobs might not be there.”

• Aneesh Raman, chief economic opportunity officer at LinkedIn, says AI is breaking the “bottom rungs of the career ladder,” as junior software developers, junior paralegals, first-year law associates “who once cut their teeth on document review,” and young retail associates are being supplanted by chatbots.

• Steve Bannon chimes in: “I don’t think anyone is taking into consideration how administrative, managerial, and tech jobs for people under 30—entry-level jobs that are so important in your 20s—are going to be eviscerated.”

And when influential figures start throwing around alarming numbers, the concern for many Americans becomes more than just rhetorical. Just this week, Virginia Senator Mark Warner asserted that AI’s economic disruption “is going to be exponentially bigger” than he thought just a few months ago, adding, “Recent college graduate unemployment is 9 percent. I’ll bet anybody in the room it goes to 30 or 35 percent before 2028.”

You get the idea. Total catastrophe.

But let’s slow down for a second and think this through.

First, this probably won’t happen, at least not as described. Most entry-level jobs are not knowledge jobs, because most jobs are not knowledge jobs. Even with dramatically better AI, there will be vast amounts of work only humans can do.

Does anyone think self-driving school buses won’t require an adult on board? What about police officers, fish and game wardens, stonemasons, plumbers, flight attendants, priests, or models? AI doomers make the mistake of assuming all jobs look like theirs—white-collar knowledge work.

But most of the economy involves working with people, physical things, or problems complex enough that AI simply can’t handle them: legislators, CEOs, antitrust attorneys, surgeons, and so on. Entry-level carpenters, health aides, and patrol officers aren’t going anywhere.

Second, even if the dire scenario materialized, the scale is more manageable than the headlines suggest. Entry-level white-collar jobs account for less than 15 percent of the U.S. labor force. Eliminating half of them over five years would mean roughly 2.6 million job losses per year.

That sounds alarming, until you note that, according to the Bureau of Labor Statistics, around 20 million U.S. workers are laid off or fired every year under normal conditions. In other words, 2.6 million is only about six weeks of routine labor market churn.

Third, even if employers everywhere stopped hiring inexperienced workers, the labor market wouldn’t simply freeze. Think dynamically.

Suppose half of May’s college graduates don’t land jobs. They’ll be supported somehow—by family, savings, or government programs—and they’ll spend that support on food, clothing, entertainment, and other goods and services. The companies providing those things will face higher demand and need to hire more people to meet it.

Don’t wave this away. A company that was selling to a million customers employs a certain number of workers. If it’s now selling to 1.1 million customers, it will need roughly 10 percent more workers to meet that demand. Where will those workers come from? Possibly the very cohort of college graduates who didn’t get knowledge-economy jobs in the first place.

“But companies won’t hire inexperienced workers,” you say. They’ll face a simple choice: forgo the additional sales or invest in training new hires. If one firm declines, a competitor will see the opportunity and take it.

Now let’s assume you’ve wrapped your head around all the above and are starting to feel less panicked for those college seniors and twenty-somethings hoping to get a job. Wait… then you start to panic again, remembering that CEOs and politicians alike are tossing out scary data and shouting from the rooftops: “It’s happening, really! AI will very soon lead to mass entry-level job displacement.”

Okay, let’s circle back to the prediction Sen. Warner made at the Axios AI+DC Summit: “Recent college graduate unemployment is 9 percent. I’ll bet anybody in the room it goes to 30 or 35 percent before 2028.”

I’ll take the bet. But let’s dissect the senator’s argument.

To start, Warner’s claim that the recent college graduate unemployment rate is 9 percent is wrong. According to the Federal Reserve Bank of New York, the unemployment rate for recent college graduates was 5.6 percent in December 2025. Across the full year of 2025, the recent graduate unemployment rate ranged between 5 and 6 percent—nowhere near 9 percent.

When compared to all workers, this 5 to 6 percent range isn’t much higher than the unemployment rate for all workers, which currently stands at about 4 percent. Even young workers without a bachelor’s degree have unemployment rates below Warner’s claim, ranging from 7 to 8 percent in 2025.

Next, Warner’s assertion that AI will lead to an unemployment rate of 30 to 35 percent is highly unlikely.

In the last 35 years, the highest recent graduate unemployment rate reached 13.4 percent in June 2020, driven by widespread shutdowns during the COVID-19 pandemic—not by technology. The recession in 2010 was the only other period of elevated unemployment for recent graduates, peaking at 7.9 percent.

Here’s what people need to firmly grasp: Even during severe economic shocks, the recent graduate unemployment rate was nowhere near 35 percent.

Warner’s prediction, and others like it, is a stretch. If anything, AI will lead to greater productivity and, subsequently, economic growth, which will have the opposite effect of the 2010 recession and the pandemic. Indeed, a study published this month found that firms adopting AI are experiencing labor productivity gains that are expected to strengthen in 2026.

This latest round of panic is, once again, first-order policy thinking at its worst. AI reduces some entry-level positions; therefore, the story ends there, and your kid lives in the basement forever. History suggests otherwise.

In fact, 10 years ago, when an increasingly large number of pundits and scholars began arguing that technology would soon lead to large-scale displacement of workers, I made a Long Bet: that by June 2025, the labor force participation rate would be above 60 percent and the unemployment rate would be below 7.5 percent.

Ten years later, I won that bet. Like I said then and have continued to say—be patient and don’t panic. Because no, robots won’t kill our jobs, emerging technology won’t cause long-term unemployment, and automation won’t result in net job losses.

Rather than fear technological change and automation, embrace it. Automation boosts productivity, and increased productivity lowers prices or raises wages, or sometimes both. In turn, lower prices and higher wages increase spending and investment, which ultimately create jobs, including entry-level ones. Oh, and we’ll all be richer too.

The last slide admits as much, revealing that the poll’s ultimate purpose is to identify which AI-related rhetoric most effectively “increases support for Democrats.” Everything upstream of that conclusion should be interpreted accordingly.

This is important because the progressive left appears to believe its best hope for electoral success in 2026 is to advance a narrative centered on inflation, job loss, and other disruptions, rather than a message about how Democrats can do a better job than Republicans at growing the economy.

The report’s most fundamental problem is the design of its questions. Throughout, respondents are presented with false and tendentious dichotomies.

On AI and worker protection, for instance, they are asked to choose between “providing help for American workers… even if that means limiting the amount that American tech companies can profit” versus “providing incentives for American tech companies… even if it allows tech companies to profit while eliminating jobs.”

This framing presupposes a zero-sum conflict between workers and tech companies, ignoring the substantial economic literature demonstrating that productivity-enhancing technology broadly raises living standards over time.

Unsurprisingly, when you construct a question to sound like a choice between helping workers and enriching corporations, most respondents choose the former. That tells us nothing about what people actually want from AI policy.

The poll also primes respondents with emotionally loaded language before measuring their views. The framing of an economy “already rigged for the elite” that uses “new technology to further stack the deck” against the American people is introduced not as a hypothesis to test but as an established backdrop. It then treats the resulting 64 percent agreement as confirmation. This is circularity dressed up as data.

Similarly, the poll conflates general cost-of-living anxiety with technology-related concerns—specifically, the rise of AI. It artificially manufactures the appearance of an AI-driven economic crisis when the underlying grievance is simply inflation and wage stagnation.

The report also presents the “cost-of-living crisis” as a settled reality, despite the fact that U.S. median wages have grown, albeit modestly, over the past year.

The selective presentation of data compounds the bias. The report buries the most balanced finding, that Americans are almost evenly split on AI’s future: 44 percent optimistic and 41 percent pessimistic. Meanwhile, it leads with the alarming figure that 69 percent of Americans believe a superintelligent AI would be “mostly harmful.”

The latter is a science-fiction hypothetical; the former reflects actual public sentiment. Choosing which number to headline is an editorial decision, not a scientific one.

Most egregiously, the report’s final section shows respondents a political ad script that claims, “Within 5 years, AI is projected to eliminate 75 percent of our jobs.” This figure has no credible empirical basis—mainstream economic research on AI and employment produces estimates nowhere near this magnitude.

Blue Rose then measures how effectively this false claim moves voters toward Democratic candidates. They are not measuring public opinion; they are optimizing disinformation. And more fundamentally, how does the so-called affordability crisis get solved without higher productivity, which necessarily means that technology eliminates some jobs and, in the process, lowers prices?

None of this means the underlying public anxieties about AI are manufactured. Economic insecurity is real, and concerns about technological displacement deserve serious policy attention.

But a poll designed from the outset to test Democratic messaging, built on leading questions and false choices, and culminating in an explicit partisan optimization exercise, is not a contribution to that serious conversation. It is a campaign tool wearing a white lab coat.

Rather than engage in this kind of anti-technology, anti-business, populist propaganda, the poll should have focused on the real issue: The frankly poor job that local, state, and federal governments do in helping workers who lose their jobs due to technology (or trade) reenter the labor market. That’s the question that matters, and one that ITIF has already addressed with a comprehensive agenda.

Yeah—UBI: universal basic income. No more worries. No more cares. No more teachers’ dirty looks. Just biweekly government checks for the rest of your life. Sign me up, Scotty.

Sometimes it’s hard not to just break out laughing at some of the harebrained ideas that so-called experts and pundits offer. UBI has to rank near the top.

UBI has been widely proposed as the solution to AI-powered robots supposedly doing all the jobs. And it’s not just the granola-eating commie hippies promoting it.

Stanford (as you would expect) has jumped on the bandwagon with its “Basic Income Lab.” The lab was founded by former Stanford professor Juliana Bidadanure, whose research focuses on “our commitment to equality” while she “diagnoses unjust inequalities.” Perhaps not surprising for someone who publishes in prestigious journals such as Studies in Marxism.

It would be one thing if this were just a quasi-Marxist academic movement, but it has gone far beyond that. The University of Pennsylvania Center for Guaranteed Income Research (yes, another one) finds that more than 30 U.S. cities have adopted UBI pilot programs.

And now, with AI supposedly about to destroy all jobs but four (the CEOs of the AI giants), UBI is being touted as the panacea to the AI “jobapocalypse.” The sad part is that this movement has gotten much of its financial support and credibility from Silicon Valley, which should know better than to fan the flames of AI fear with offers of welfare payments.

Former Facebook co-founder and funder of all sorts of anti-corporate activities, Chris Hughes, was one of the original funders of the Economic Security Project, which supports research and cultural engagement around guaranteed income and contributed millions to the Stockton, California, UBI experiment.

A recent op-ed in The Hill titled “The US is headed for mass unemployment, and no one is prepared” called for, you guessed it, UBI. But be assured the author, John Mac Ghlionn, is not some crazy Marxist. No, he writes for the New York Post and once upon a time The American Conservative (which raises the question: What has the conservative movement come to?).

Ghlionn tells us he’s a conservative who was mugged by reality: “Something fundamental has shifted, and pretending otherwise is nothing short of denial. The AI revolution is here, and it’s gutting entire sectors with hurricane force.”

Really? A hurricane of job destruction? This must explain why the rate of job loss from downsizing and closures in the first quarter of 2025 (the latest data) was the lowest since the Bureau of Labor Statistics started collecting the data in 1995. It must also explain why the unemployment rate was just 4.3 percent in January of this year, more than a percentage point lower than the 50-year average.

The sad thing is that 47 percent of the article’s readers, responding to the poll asking whether they support UBI, said they do.

Oh, but wait—the job apocalypse is coming. Really, it is. Geoffrey Hinton says so.

Well, leaving aside the myth that AI will displace all jobs (which I will address in future posts), what’s wrong with UBI?

Where to begin?

How about the fact that the longer people are out of the labor market, the longer they tend to stay out. UBI is welfare, although supporters avoid that term like the plague because welfare is stigmatized as people getting money for nothing. But who can be opposed to UBI? It’s universal. It’s basic. And it’s income.

But for many UBI supporters, being out of the labor market is the point. Why bother working, especially when you are an “oppressed proletariat,” when you can do nothing and have the Man pay for it?

I don’t know about you, but I don’t want my kids living in a Ready Player One–style world where they play video games all day while eating dried seaweed.

Rather than UBI welfare, the task, as ITIF has laid out, is to improve federal worker adjustment assistance programs.

But even if we agreed that UBI is beneficial, what’s the rush? Wake me when unemployment—in a non-recessionary quarter—exceeds 10 percent. By the way, that will not happen, and I am on record willing to bet anyone that it won’t.

If we really do see AI enabling large numbers of jobs to be automated (and according to the Congressional Budget Office that isn’t happening anytime soon), and if the lump-of-labor fallacy somehow turns out not to be a fallacy, and additional jobs are not created from the lower prices generated by AI-driven automation, it is still not clear why there would be a problem.

If AI can do all the work, then the price of everything falls toward almost nothing: A car for $50 and a haircut for 10 cents. If that is the case, and if people can cobble together 10 or 20 hours of work a year, they can live quite well.

But in any case, until we get to 10 percent unemployment, please stop bothering us with this socialist nonsense.

The Global Future Council on the Future of Growth—part of WEF’s 2023-2024 Network of Global Future Councils, which convened senior economists and thought leaders from academia, business, and government to provide “intellectual guidance on new approaches to growth”—released a report arguing that the world must “shift gears,” move out of the “slow growth lane,” and pursue a “better quality of economic growth.”

Ah, who could possibly be against that? What are you, some kind of anti-growth heathen?

The report starts by decrying that “economic growth has been uneven… leading to significant inequalities.” Well, according to the World Bank, the number of high inequality countries fell from 77 in 2000 to just 52 in 2022, the latest year with comparable data. In other words, recent global growth appears to be reducing inequality, not worsening it.

Of course, no cocktail party report can get away without the requisite hand-wringing about climate change. The WEF report criticizes the fact that only 50 countries have reduced CO₂ emissions. But it blithely ignores the fact that most countries, and the world as a whole, have moved to become significantly more carbon-efficient, with global GDP increasing much faster than CO₂ emissions.

The only way to achieve sustained declines in global greenhouse gas emissions—short of embracing “degrowth,” which would consign billions to crushing poverty—is to significantly increase government support for clean energy R&D that will reduce the cost of clean energy to at or below that of dirty fossil fuels. (Bizarrely, WEF can’t seem to make up its mind whether it considers degrowth an evil notion or a serious policy option.)

Fusion energy looks extremely promising if it works. But the idea that some new form of capitalism can solve climate change, or that countries will willingly pay more for energy to save the planet, is wishful thinking.

Even more bizarre, the Global Future Council suggests that this new capitalism would involve rich countries pouring hundreds of billions of dollars into poorer countries to help them afford expensive clean energy. All in the name of getting the entire world to embrace “green growth.” This borders on Orwellian logic. You do not get growth from spending more on something when you could spend less. That is called degrowth…

The report also calls for “bringing countries that have been left behind back onto the growth ladder,” particularly in Africa. But the kind of capitalism we have today is not the reason for slow growth in Africa, India, and many other developing economies. The causes are largely twofold.

First, China’s dominance in low-wage manufacturing has absorbed many of the opportunities these kinds of countries historically relied on to industrialize. Yet the last thing WEF will do is criticize Beijing.

Second, in most of these nations, corruption and insufficient economic governance are the primary drivers of stagnation. And let’s not forget the European Union’s ban on GMO crops, which effectively consigns large portions of African agriculture to persistently low levels of productivity.

If capitalism were truly the problem, why have certain well-governed African economies such as Botswana and Mauritius enjoyed strong productivity growth?

And, like anything “green,” any report today also has to include AI. Don’t worry, WEF does not disappoint. Artificial intelligence, we are told, is harmful because it will be used more in high-income nations, given that wages are lower in developing economies. But why is AI different from any other efficiency-enhancing process technology introduced over the past century? It is not.

While expensive automation may make less sense in low-income countries, these economies have far more low-hanging fruit available by adopting efficiency practices already common in advanced economies. These countries could reduce regulatory protection for small, informal producers, eliminate labor regulations that discourage firms from scaling, and improve logistics and infrastructure. None of this is rocket science. The barriers are corruption and bureaucracy.

Rather than focus on these problems—after all, we certainly wouldn’t want to blame the “victim” for its own policy failures—the Global Future Council report focuses on… skills. The supposed solution to everything.

But not just any skills. Get ready for it: green skills. Skills so workers can produce expensive green energy that will likely account for about 5 percent of these nations’ GDP, at most.

And of course, like any good Davos Man manifesto, the report recoils in horror from “geoeconomic fragmentation,” even though China is almost entirely to blame for it through systematic violations of both the rules and the spirit of the global trading system under the World Trade Organization.

The report closes with the following optimistic statement: “Global economic growth may have had several problems so far this century, but with not even a quarter of the 2000s behind us, we have a unique opportunity to transform it into a century of solutions.”

I disagree, but not with the notion that we have an opportunity to accelerate economic growth. Rather, I disagree with the claim that global growth has had “several problems” this century. It has not had multiple problems. It has had just one central problem: Productivity growth has been, and continues to be, too low.

That is because almost no country has a serious national productivity strategy. Instead, many nations, particularly in the EU and within the WEF policy orbit, have turned away from policies that prioritize capitalist growth. Meanwhile, many developing countries remain trapped in corruption, weak institutions, and business environments conducive to stagnation or even outright regression.

This report demonstrates the type of thinking produced when a temporary council of global elites convenes to advance “cutting-edge insights and disruptive ideas toward a balanced growth agenda.” If WEF wants to make a truly meaningful contribution, rather than attempt to rethink capitalism, it should start by articulating a serious global productivity growth agenda. What we do not need are calls for warmed-over socialism dressed up as a “cutting-edge” growth model.

CBS News MoneyWatch warns that “Corporate profits are soaring even as layoffs mount.” Quartz declares that “Big tech companies are richer than ever and Wall Street is happy. But they’re still laying off thousands of workers.”

When The Washington Post announced steep layoffs earlier this month, some attacked billionaire Jeff Bezos for not keeping those employees on. After all, if he has that much money, surely he should be willing to give it to deserving Post reporters the paper no longer needs.

Truthout said that if only evil Bezos would give $100 million to the paper, his net worth would decline from $248.7 billion to $248.6 billion. Look, you won’t get any argument from me that we should tax billionaires more, but if the paper is losing $100 million a year, why should he—or anyone—subsidize it?

You get the idea. As long as companies are not losing money, they should never lay off workers. But what if a company uses technology to produce the same output with 5 percent fewer workers? Should it keep employing those workers even though it no longer needs them?

Yes, according to the new zeitgeist in America, which sees a company’s purpose not as serving consumers through lower prices, higher quality, and innovation, but as running cushy jobs programs for workers.

They used to call this featherbedding: A labor practice where unions require employers to hire more workers than needed or maintain inefficient work rules, often to protect jobs from technology. It leads to higher costs while providing job security (and cushy work) for some members. Think of rules requiring extra crew members on trains regardless of operational need. Thankfully, Congress made that practice unlawful decades ago, and the National Labor Relations Board (NLRB) enforces the prohibition on payment for services not performed.

So how do so many people get this so wrong? The short answer is that they believe corporations have virtually unlimited profit opportunities and that every worker laid off translates directly into more profits.

This is mistaken. If one company in an industry achieves efficiencies and lays off some workers, it will initially earn higher profits—until competitors follow suit. At that point, competition kicks in and companies pass most of their savings on to consumers.

But what if they don’t? Well, that would require rewriting the fundamental laws of economics. Since 1950, U.S. labor productivity has increased approximately 299 percent—meaning the average American worker now produces roughly three times more output per hour worked—while average corporate profit margins have not trended upward over the long run. Worth pausing on.

Another way to think about this: Imagine Senator Bernie Sanders and Representative AOC get their wish, and the United States becomes a socialist economy, with most companies operating as worker-owned cooperatives. Now imagine AI arrives and allows those co-ops to produce the same output with 10 percent fewer workers. If all the co-op workers said, “hell no, we won’t go,” incomes would stagnate. No one would see declining relative prices, and living standards would flatline. Surely that can’t be what socialists want.

The same logic applies to a for-profit economy. We should want companies to shed workers they no longer need, because the lion’s share of the savings—especially over the medium term—flows through to lower prices, higher real wages, and new investment opportunities, while displaced workers move on to new jobs.

That’s how it has worked since the founding of the Republic, and there is no good reason to believe it will stop now. While future posts will detail why the AI job doomers are wrong, I’ve been making this argument for decades.

If you’re curious, peruse ITIF’s @Work Series, which houses publications dating back to 2011 examining how technological change has reshaped labor markets historically, why claims that innovation destroys more jobs than it creates are wrong, how productivity growth affects wages and employment, and what specific steps policymakers should take to reform the nation’s workforce training and employment systems. (You could also start with my most recent book, Technology Fears and Scapegoats: 40 Myths About Privacy, Jobs, AI, and Today’s Innovation Economy.)

Yes, like today’s headlines, I too write about workers, productivity, AI-driven job loss, robots, wages, and technological disruption. The difference is that I don’t traffic in alarmism or fuel public panic. I explain why the answer is not to slow innovation, but to accelerate it.

Finally, just to prove I am not a hard-hearted son of a gun—or a libertarian, or both—while I don’t believe economic organizations should be jobs programs, I do believe that government can and should do much more to help workers who have lost their jobs through no fault of their own. I have laid out such an agenda here.

Wake me if Congress ever gets around to doing anything to move that agenda forward. In the meantime, I still value growth. So, three cheers for companies that lay off workers when they genuinely no longer need them.

I don’t mean culture in the narrow sense of just books, movies, and music. I mean the overarching narratives and shared views held by society, and especially by what Michael Lind calls the managerial overclass—”the university-credentialed elite that clusters in high-income hubs and dominates government, the economy, and the culture.” It’s the scribblings and pronouncements of these folks that shape the beliefs most Americans have on many issues, including digitalization and now AI.

Unfortunately, this knowledge elite in America, as well as in Commonwealth nations and Europe, now forms a stiff collective headwind against digitalization—both against the competitive success of digital firms and against the overall process of digital transformation (i.e., the deep digitalization of most sectors of the economy and society, including through AI).

It’s hard to say when American culture turned from supportive to oppositional, but perhaps 2011, the year Steve Jobs died, is as good a demarcation point as any. Since then, the elite class narrative has transformed from one generally supportive of digital progress, or at worst neutral, to one of critique, disdain, and mockery.

Before 2011, if you wanted to be one of the “cool kids,” you waxed poetic about digital transformation, how it would spur growth and democratize information. Now, anyone seeking cocktail party acceptance or a TED Talk speaking slot must obligatorily offer one or more critiques of not just tech, but BIG TECH. If before you marveled at Moore’s Law, 3G, and Web 2.0, now you bemoan how tech is destroying democracy, eroding privacy, and killing jobs. And others nod their heads and murmur in affirmation.

The list of complaints seems endless, providing the cool kid skeptics with a panoply of causes and talking points. Indeed, elites now compete fiercely to produce the most aggressive takedown. Anti-establishment, anti-intellectual property “activist” Cory Doctorow coined the term “enshittification.” Very clever, Cory. But what about broken brains? That’s even better. Right wing commentator Matt Walsh says AI has declared “war on humanity.” Better still, we’re entering a “digital dark age.” Why not just be done with it and declare “digital: the spawn of Satan”? Kind of hard to top that one.

Let’s look at AI. Of course, according to its critics, AI is:

• Biased

• Killing jobs

• Violating privacy

• Creating security risks

• Destroying the environment

• Enabling price discrimination

• Facilitating anti-competitive collusion

• Jacking up electric rates

• Concentrating power into the hands of a few tech bros

• Flooding the internet with garbage

• Exploiting labor

• Enabling racially biased predictive policing

• Supporting digital redlining

• Creating data deserts

• Undermining learning

• Powering misinformation and disinformation

• Leading to polarization and echo chambers

• Enabling widespread manipulation

• Atrophying human capabilities

• Exacerbating economic inequality

• Deskilling professions

• Enabling theft of artists’ content

• Leading to social isolation

• Eroding trust

• Enabling avoidance of accountability

• Destroying small businesses

• Misdiagnosing medical issues

• Not accessible for the disabled

• Widening the digital divide

• Leading to financial or economic collapse

• Spurring addiction

• Limiting social development

• Atrophying critical thinking

• Limiting scientific progress through synthetic noise

• Homogenizing culture

• Enabling worker surveillance

• Leading to infrastructure dependency

• Aiding harassment and bullying

• Empowering liberals

• Empowering conservatives

• Fostering digital imperialism and colonialization

• Expanding pornography

• Disorienting people through the speed of change

• Letting corporations avoid accountability

• Powering the surveillance state

• Weakening the family

• Destroying the news business

• Making us poor

• Creating an algorithmic monoculture

• Apparently, even causing Alzheimer’s (a conference panelist once suggested this because we no longer read maps)

And of course: CREATING THE TERMINATOR so that EVERYONE will die (hopefully it spares our pets). Get your affairs in order and prepare to meet your maker.

I could easily compile a list ten times longer of the benefits of digital transformation. But why bother? ITIF and a few other pro-innovation organizations have been documenting those benefits for years. It is like spitting into the wind.

With the shift to a critical culture, evidence becomes superfluous. No one wants to be the uncool kid in the corner talking about the potential of AI adding three-tenths of a percentage point to annual productivity growth. Much better to warn that Open AI will overwhelm the electric grid. Ooooh.

As history shows, culture matters. A critical, rather than supportive, culture produces a business and entrepreneurial class that doubts itself and a society that hesitates rather than seeks faster progress. This should be obvious. If elites—including the intellectual and political classes—are not wholeheartedly behind technological progress and transformation, whether industrial or digital, progress will inevitably be more halting and less successful.

In a world where America faces intense international competition in the digital space, especially from China, this is a cultural posture we adopt at our peril.

This is a two-part blog. In the first installment, I examine the role culture played in industrial development and economic progress through England’s experience. It relies predominantly on Martin Wiener’s 2004 book, English Culture and the Decline of the Industrial Spirit, 1850-1980, which anyone interested in industrial development should read. Wiener’s heavily documented thesis is that although “England was the world’s first great industrial nation… the English have never been comfortable with industrialization,” that discomfort ultimately contributed to industrial weakness and decline.

Wiener argues that after roughly 40 or 50 years of support and enthusiasm at the dawn of English industrialization, Britain never quite seemed culturally “at home” with progress. Ultimately, this anti-industrial sentiment contributed to the decline of British industry and the “modern fading of national economic dynamism.”

England’s state of mind, like that of much of the United States today, was profoundly conservative in the sense of preserving the past while remaining skeptical of, or openly hostile to, the present and future.

According to Wiener, the English genius “was not economic or technical, but social and spiritual; it did not lie in inventing, producing or selling, but in preserving, harmonizing and normalizing.” He goes on to note that Britain’s greatest task—and achievement—lay in “taming and ‘civilizing’ the dangerous engines or progress it had unwittingly unleashed.”

English society did tame those engines, and in doing so, tamed the entrepreneurial spirits that sought to push forward and keep their country in the lead. Meanwhile, other nations, including the United States, Germany, and later Japan, got on with the task of unleashing and surged ahead.

But today, America is in the process of leashing itself. States compete to regulate first and most aggressively. Pundits rush to see who can write the harshest critique of our “digital dystopia.” Members of Congress battle to decry the harms of AI and introduce restrictive legislation.

So why did England invent the machine but then become ambivalent at best, and hostile at worst, toward industrialization? Wiener writes that “modernization has never been a simple and easy process. Wherever and whenever it has occurred, severe psychological and ideologic strains have resulted.” English elites resisted those strains, much as American elites do today. I wish “resistance is futile,” but in Britain’s case, it was not. It was effective. They made less progress and grew more feeble.

To be sure, there were a few dissenters who resisted the elite narrative. But not many. As Wiener notes, “Rarely were these canons challenged, and then only by self-possessed ‘rugged individualists’ who had a strong sense of swimming against the tide.”

Every day in America, fewer seem willing to swim against the tide. It is easier to retreat to the shore and observe—or better yet, turn to the preservation and fund massive anti-digitalization and anti-Big Tech campaigns, as so many guilt-ridden, cashed-out tech billionaires have done.

So what, you may ask? America is still the digital leader. But as Wiener reminds us, ideas have consequences. How could they possibly not? England was still the manufacturing leader as late as the 1880s and 1890s. Yet by then, English politics reflected deep ambivalence about industrial society and, in practice, helped dampen rather than stimulate industrial development. These widespread cultural values ended up discouraging “commitment to a wholehearted pursuit of economic growth,” explains Wiener.

It should therefore come as no surprise that the UK today is largely an industrial wasteland, with per-capita income roughly 30 percent lower than that of the United States. And, according to the World Happiness Report, English people are no happier for it (or than Americans, for that matter). Cultural ambivalence toward growth and industry carries long-term costs.

It is difficult to overstate the seriousness of this threat to America and the broader West. The culture of digital and AI opposition is one of two major threats to American prosperity and power, the other being the People’s Republic of China’s systematic effort to achieve global domination of national power industries.

It may be asking too much to return to unleashing progress or optimism. But unless U.S. (and allied) culture shifts at least back to neutrality, other nations unburdened by this self-doubt (even self-hatred) and digital fear will progress faster. We can expect to be outpaced and eventually surpassed, just as others once left the UK in the comfortable dust.

I can imagine the U.S. elite class 20 years from now looking at those “materialist,” shallow nations that have completely transformed their education and health care systems with AI, pitying them for losing the “human touch.” Decrying their wealth as environmentally irresponsible. Criticizing our dependence on their digital champions.

Meanwhile, we Americans will congratulate ourselves for preserving our lovely analogue world, reading paperback books, listening to vinyl records, and sending handwritten letters. Let’s hope we don’t revive fax machines, but who knows? Perhaps U.S. elites will turn to carrier pigeons. Owl mail from Harry Potter might be cool—although a “wizarding-adjacent” delivery system would likely be deemed too disruptive, too dystopian, or too innovative.

Critics, of course, defend themselves by arguing that they didn’t change; the internet did. Tim Wu, a longtime Big Tech and telecom critic, states that his new book, The Age of Extraction, “is the story of the last 20 years or so… of the dream of the internet. And then, what happened to wreck it essentially.” For Wu, “wreck” appears to mean an internet that is neither government-owned, worker-co-op-run, nor hacker-managed, yet is used daily by nearly every American and organization. For these digital purists, everything went downhill after Stewart Brand’s email system, The WELL, and the first spam message on ARPANET. Why can’t the internet be like Wikipedia and Craigslist, they ask?

But utopian techno-nurd nostalgia does not fully explain the turn to opposition. Tim and thousands of critics like him are intellectual descendants of the 1960s anti-establishment ethos: If it’s establishment, they’re against it. When Apple was the upstart challenging “Big Brother” IBM, it was cool. Now Apple is evil. When Google was taking on Bill Gates and the Microsoft monopoly, it was cool. Now it’s evil. When OpenAI first challenged Google, it too was cool. Now it is rapidly morphing into the next evil villain. It’s strange how many establishment elites cling to a prideful posture of adolescent anti-establishmentism.

And let’s not forget, Wu wants to be one of the cool kids. Who wouldn’t? Unless, of course, you care more about truth than popularity. If Tim wrote a book called “The Age of Prosperity” rather than The Age of Extraction, it would be met with yawns, not op-eds in The New York Times or The Guardian.

Now multiply this dynamic 10,000 times, across thousands of influential voices eager to join the cool kids club of digital opposition, and you get America’s (and the West’s) corrosive digital culture. In some respects, if one can believe it, Canada, the UK, Australia, and most of Europe are even worse off. These allied nations may be even further down this path, as they rail against both digitalization and American tech—which might help explain their lagging digital productivity growth relative to the United States.

That said, none of this fully explains the rise of an anti-digitalization culture over the last 15 or so years. Perhaps the most compelling explanation is America’s increasing selfishness—what Christopher Lasch termed “the culture of narcissism.” This orientation, which had been brewing since the self-absorption of the 1960s, emerged in full force in the 2010s.

In this mindset, everything is judged not by its collective contribution—what it does for the community or nation, since collective benefits are now dismissed as serving only wealthy elites and powerful corporations—but by its impact on the individual’s narrow self-interests, often in the role of victim rather than citizen.

The long list above of critics about AI reflects this. Is AI going to take my job? Who cares about societal productivity? Is AI going to harm my privacy? Who cares about data innovation? Is AI going to jack up my electric bill? Who cares if AI can make low-income communities safer?

There has almost never been a transformative technology that did not carry risks or cause harm. Automobiles kill people. Electricity causes house fires. Chemicals can cause cancer. Yet earlier generations balanced risk with ambition. Americans had courage and a communitarian spirit, accepting trade-offs in pursuit of national prosperity and progress. They rushed toward technological innovation rather than retreating to the barricades. As Robert Frost put it, “And that has made all the difference.” Today we have cowardice and selfishness, and we rush toward stopping digital innovation.

I wish I could be more optimistic that America will avoid the long, downward path England took. To be sure, the United Kingdom is richer and more technologically advanced than it was 75 years ago. But relative to its peers, it’s a shell of what it should be, underperforming its potential. Unless extremists seize control, which remains possible, the U.S. economy will continue to grow and advance technologically.

But without a fundamental shift in culture, America will gradually decline relative to other nations, ceding leadership. One could easily imagine a world in 2075 where China and India dominate advanced digital industries while the United States is a “pleasant country” with a mid-tier global economy and some “quaint ways.” Those who are 30 years old today will be entering their 80s, looking at their buddies and saying, “Ah, remember when?”

I have no desire to live in that country—one defined by animosity toward technology, fear of innovation, analogue envy, and the techno-economic stagnation that accompanies such attitudes. That is not the America I moved to as a boy from Canada. That is not the America I want for my two children and two grandchildren.

It is late in the game, but it is still not too late to overturn digital pessimism and hostility and recognize them as fundamentally misguided. As Wiener observed of England, it will require many more self-possessed “rugged individualists” willing to swim against the anti-digital tide.

Who wants to join me? The water’s great.

It’s hard to say exactly when the culture turned from supportive to oppositional, but perhaps 2011, the year Steve Jobs died, is as good a turning point as any. Since then, the U.S. elite narrative, long one of digital enthusiasm and interest, has shifted largely toward digital skepticism and critique.

As history shows, culture matters. A critical, rather than supportive, culture produces a business class that doubts itself and a society that hesitates rather than seeks faster progress. This should be obvious. If elites—including the intellectual and political classes—are not wholeheartedly behind technological progress and transformation, whether industrial or digital, progress will inevitably be more halting and less successful. In a world where America faces intense international competition in the digital space, this is a cultural posture we can ill afford.

This is a two-part blog. This first installment examines the role culture played in industrial development through the experience of England. It relies predominantly on Martin Wiener’s 2004 book, English Culture and the Decline of the Industrial Spirit, 1850-1980, which anyone interested in industrial development should read.

Wiener’s heavily documented thesis is that although “England was the world’s first great industrial nation… the English have never been comfortable with industrialization,” that discomfort ultimately contributed to industrial weakness and decline.

I argue in the second blog that the same dynamic is now playing out in the United States with respect to digitalization.

Wiener argues that notwithstanding the first 40 or 50 years of English industrialization, Britain never quite seemed culturally “at home” with industry. Over time, these anti-industrial views contributed to the decline of British industry and the “modern fading of national economic dynamism.”

England’s state of mind, like that of much of the United States today, was profoundly conservative in the sense of preserving the past while remaining skeptical of, or openly hostile to, the present and future.

Ralf Dahrendorf, the German-born director of the London School of Economics and Political Science from 1974 to 1984, concluded that “an effective economic strategy for Britain will have to begin in the cultural sphere.” The same is true for the United States today.

Wiener argues that “for a long time, the English have not felt comfortable with ‘progress.’” He states:

The English nation even became ill at ease enough with its prodigal prodigy to deny its legitimacy by adopting a conception of Englishness that virtually excluded industrialization… In the later years of Victoria’s reign, they came to form a complex, entrenched culture syndrome, pervading ‘educated opinion’. The idealization of material growth and technological innovation that had been emerging received a check, and was more and more pushed back by the contrary ideals of stability, tranquility, closeness to the past and ‘nonmaterialism’.

He goes on to note that the English genius “was not economic or technical, but social and spiritual; it did not lie in inventing, producing or selling, but in preserving, harmonizing and normalizing.” According to Wiener, Britain’s greatest task—and achievement—lay in “taming and ‘civilizing’ the dangerous engines or progress it had unwittingly unleashed.”

England did this while other nations, including the United States, Germany, and Japan, got on with the task of unleashing. Indeed, Wiener points out that “even those nostalgic for the rural past in America rarely disdained manufacturing and progress.”

As one English scholar wrote in 1976, “In West Germany neither making money nor making three-dimensional artifacts are culturally dubious activities.” Today, by contrast, America’s elites are nostalgic. They increasingly romanticize an analog past.

So why did England invent the machine but then become ambivalent at best—and hostile at worst—toward industrialization? Wiener writes that “modernization has never been a simple and easy process. Wherever and whenever it has occurred, severe psychological and ideologic strains have resulted.” English elites resisted those strains, much as American elites do today.

Part of this resistance took the form of the aristocratic landed elite absorbing the new industrial bourgeoisie. Indeed, a mark of success for a wealthy factory owner was often to retire and buy or build a large estate in the country. Wiener explains that “the consolidation of a ‘gentrified’ bourgeois culture” meant that economists, journalists, civil servants, and even political leaders increasingly held sentiments and ideals that restrained rather than stimulated economic growth.

As early as the 1820s, John Stuart Mill set the tone, describing industrialists as “the very classes of persons you would pick out as the most remarkable for a narrow and bigoted understanding and a stunted and contracted disposition as respects all things wider than their businesses and families.”

Even at the relative height of England’s industrial revolution—symbolized by the construction of the Crystal Palace in Hyde Park for the Great Exhibition of 1851—the reaction was mixed at best. Much like today’s digital skeptics:

• Social critic John Ruskin dismissed industrialization as nothing but “noise, emptiness, and idiocy.”

• Rudyard Kipling famously refused to install a telephone in his country estate.

• According to George Bernard Shaw, Charles Dickens thought the industrial system was “horrible.”

• Historian Arnold Toynbee called English industrialization “a period as disastrous and as terrible as any through which a nation ever passed.”

And, of course, this hostility toward industrialization extended naturally into contempt for America. British philosopher Herbert Spencer, who laid the groundwork for Social Darwinism, wrote that “the American is less happy,” and that existing and future generations of Americans “are and will be essentially sacrificed.”

Wiener quotes a widely read left-wing intellectual writing in 1926 that “the English dislike America for the American worship of size, speed, mechanism, and money.” As Wiener observes, America was seen as offering the least resistance to the dehumanizing tendencies of modernity; it had “sold its soul” to industrialization. It also created a mass middle class in the process.

In the minds of the British, America became—to borrow Tolkien’s imagery—Mordor, while England was “the Shire.”

Even England’s leading economists, not unlike some today in the United States (e.g., Nobel laureate Daron Acemoglu), were ambivalent toward industrial growth. Alfred Marshall hoped for a society in which social order would surpass the present through “the subordination of material possessions to human well-being.” John Maynard Keynes was “not a great friend of the profit motive.”

As Wiener explains, these economists, along with Treasury and other government officials, similarly attached “a low priority to the increase of production and the pursuit of material gain.” One UK Treasury official warned in 1960 that economic advance was disruptive, and that economic change itself was “evil.” It is therefore no surprise that the anti-growth guru of the 1960s, E. F. Schumacher, was an English economist. (Schumacher’s “small is beautiful” doctrine would later inspire the title of my 2018 book, Big Is Beautiful: Debunking the Myth of Small Business.)

These views were also reflected in British politicians and leadership:

• Conservative Prime Minister Stanley Baldwin saw himself as a representative of “those far-off days before acceleration was regarded as a manifestation of civilization.”

• Lord Halifax sought to shift agriculture away from efficiency and toward a vision in which more English workers could return to the farm and leave the urban factory behind.

• Liberal leader Sir Edward Grey wrote, “I took things as I found them and for 30 years spoke of progress as an enlargement of the Victorian industrial age—as if anything could be good that led to telephones and cinematographs and large cities and the Daily Mail.”

As Wiener concludes, after World War I, government and politics in England became permeated by a mentality that regarded industry as a necessary evil and innovation and competition as risky and faintly disreputable.

Sounding strikingly like today’s “family-first” national conservatives in the United States, the UK Conservative Party’s official 1949 platform declared:

Conservatism proclaims the inability of purely materialist philosophies to read the riddle of life, and the necessity of subordinating scientific invention and economic progress to the needs of the human spirit.

The socialists of the time were no better, lamenting that “the world is growing ever blacker, uglier, noisier, and more meaningless,” and insisting there was still time to “turn back.” Even England’s unions were ambivalent about industrial growth, decrying their organized American brothers and sisters and criticizing them as “too materialist in their aims.”

There were, of course, a few dissenters who resisted the elite narrative. As Wiener notes, “Rarely were these canons challenged, and then only by self-possessed ‘rugged individualists’ who had a strong sense of swimming against the tide.”

Other nations did not suffer from this pathology. America certainly did not. Nor did the Asian Tigers after the 1950s. Germany did not either.

As Wiener reminds us, ideas have consequences. How could they possibly not? English politics reflected widespread ambivalence toward industrial society and, in practice, dampened rather than stimulated industrial development. He writes that these cultural values ultimately “discouraged commitment to a wholehearted pursuit of economic growth.”

It should therefore come as no surprise that the UK today is largely an industrial wasteland, with per-capita income roughly 30 percent lower than that of the United States and, according to the World Happiness Report, no happier for it—or than Americans, for that matter.

Culture matters.

We are unfortunately approaching that point with the idea that it is time to let Chinese companies, especially EV and battery makers, have tariff-free access to the U.S. market if they produce their products here. Let’s be clear: This would be the final nail in the coffin of U.S. manufacturing.

The current iteration of the idea is to encourage Chinese EV and battery makers to build factories in America, following the model of many Taiwanese, Japanese, Korean, and European firms that already operate facilities here across a range of industries. Proponents believe that this would reduce the massive trade deficit and create manufacturing jobs.

But this is an idea that needs to be smothered in its intellectual cradle.

To be sure, if the choice is between importing Chinese goods and having them made in the United States, the latter is more tolerable. But that should not be the choice. That framing ignores the fact that other options exist and that some are already in place.

For example, in the case of Chinese EVs, why not just continue with the 100 percent tariffs? Allowing BYD or another Chinese automaker to open a factory in the United States wouldn’t create any net new American manufacturing jobs (vehicle demand is finite). It would simply shift vehicle-manufacturing jobs to Chinese-owned companies. The same is true for most Chinese imports, especially products already made in the United States, such as semiconductors, pharmaceuticals, and machine tools.

Doing so would mean reduced domestic firm capabilities. To use the auto example, letting Chinese firms produce here could very well lead to the bankruptcy of one of the Big Three. If not bankruptcy, then at minimum mass layoffs across all three companies.

Predictably, globalists will argue that tariffs are bad, especially on planet-saving products like EVs and batteries. I agree: Tariffs on most of our allies—at least ones that are higher than what they impose on U.S. exports—are not good. But China is a whole different kettle of fish.

China is the kryptonite of the global trading order and the WTO. Massive subsidies, closed domestic markets, standards manipulation, and IP theft are hallmarks of the CCP’s system. Why should the West reward such predatory practices with market access?

But okay, set all that aside. What if policymakers ignore these transgressions and, in the name of free trade and international comity—”it is critical that Trump and Xi cooperate”—remove the tariffs, or at least lower them to the so-called Liberation Day base rate of 10 percent? Then the choice does become one between imports from China and Chinese production in America.

At first glance, having the Chinese producer here might seem better, assuming the Chinese share of the U.S. market remains the same under imports versus domestic production. But that assumption is unlikely to hold true. Producing here could very well give Chinese firms a larger share of the American market, given their ability to gain tacit, ground-level knowledge of U.S. industries and consumer behavior.

But even if market share were identical under imports versus domestic production, there are still good reasons to oppose the latter. Unlike American-produced cars and some of those made by foreign automakers, a substantial share of the value added in vehicles is generated in the United States (or at least in North America). That would likely not be the case with Chinese companies, whether in autos, batteries, or other advanced-tech industries.

Much of the highest value-added work, including R&D, engineering, and the most complex production processes, would likely remain in China. Reducing the market share of U.S. firms would therefore mean fewer design, R&D, and advanced engineering jobs, as well as reduced innovation output, in the United States.

In addition, even assuming all cyber risks could be fully addressed—no remote shutdowns or CCP-directed tracking—China would still gain greater control over the U.S. economy. Unlike any other country in the world, the CCP can tell its firms to jump, and they ask, “How high?”

It is one thing to encourage our allies to build factories on American soil; that is far better than continued imports. For decades, international automakers like Toyota, Honda, and BMW have invested in U.S. operations, building full-scale production factories—and that’s a good thing. Foreign firms in other advanced industries, such as Samsung and TSMC, are expanding their manufacturing footprints in the United States, building cutting-edge facilities—and that, too, is a good thing.

But that is fundamentally different from allowing China to do the same. Our allies, including Korea, Japan, Germany, and others, are well-established allies. To be sure, President Trump’s protectionist actions have unsettled some allied leaders, and recent rhetoric at Davos has exposed real friction within the Western alliance. But these countries remain durable market democracies with long-term interests more closely aligned with the United States than with the CCP. Their strength still reinforces overall allied techno-industrial power vis-à-vis Beijing.

Allowing Chinese factories in the United States would largely displace American firms’ market share, hollow out domestic capabilities, and create new strategic dependencies—if not all three at once.

Even more troubling, however, is what this new, increasingly fashionable idea says about the overall state of U.S. techno-economic development. There is a long tradition in regional economics and economic geography focused on the spatial organization of production. Originally put forth in 1960 by economist Raymond Vernon and refined nearly 20 years later by economic geographers John Rees and R.D. Norton, this framework holds that advanced regions and nations specialize in early-stage product-cycle activities, such as R&D, engineering, and prototype production, coupled with continuous innovation. Lagging regions and nations, by contrast, depend largely on attracting commodity-production branch plants after products and production processes have reached some level of maturity.

For example, when personal computers were first being introduced in the 1980s and early 1990s, more of them were made in the United States, in part because designs were constantly changing and required close interaction among design, engineering, and production. But as PC technology matured—still evolving, but more incrementally, with process technology relatively stable—production could be moved offshore with relatively little impact on innovation.

This core-periphery distinction, based on production-cycle stage, characterized state and local economic development strategy in the United States from the 1930s through the 1990s. Higher-cost Northeast and Midwest states were home to most advanced production activities, while lower-cost Southern, Southwestern, and Mountain states specialized in recruiting manufacturing factories from established industrial cores: a practice called “smokestack chasing.”

That dynamic began to change fundamentally with NAFTA in 1994 and then accelerated with permanent normal trade relations (PNTR) with China in 2000. U.S. companies increasingly moved routinized production not to the Southeast United States, but to Southeast Asia and just south of the U.S. border. At one level, this might have been fine if two conditions had held: (1) the United States ran roughly balanced trade, replacing lost factories with new advanced, export-oriented production at home; and (2) it continued to move up the value chain, capturing the lion’s share of innovation-based production activity.

Needless to say, that failed to happen. China, Mexico, and other low-cost competitors contributed to a sharp decline in U.S. manufacturing and a widening trade deficit. Worse still, China has made substantial gains in advanced industries, to the detriment of the United States as a whole. Of course, a few regions—Silicon Valley, Boston, Seattle, and San Diego—retain strong innovation ecosystems, but much of the country has weakened. The “Rust Belt” effectively became a “Rust Nation.”

The reason for this background is simple. With today’s renewed push, including by the Trump administration, to induce other countries to build in the United States, it appears the country has come full circle.

Once the world’s leading industrial core for early-stage product-cycle innovation and advanced technology generation, the United States now risks sliding into the periphery. Instead of behaving as the U.S. Northeast and Midwest once did, it risks behaving as the Southern, Southwestern, and Mountain regions did: begging, bribing, and threatening foreign companies to build factories on U.S. soil.

In their defense, advocates of allowing Chinese factories across America argue that this is necessary, claiming that such exposure will shock U.S. companies out of their lethargy, “forcing them to compete.” Blogger Noah Smith makes this case by citing a study by Bloom et al.; as Smith summarizes it, while the “First China Shock hurt European profits and workers alike, it also increased innovation and productivity among European producers.”

First, having recently spoken at the Society of Automotive Engineers’ annual conference, I can say with confidence that the American auto industry, including foreign transplants, is already scared witless of Chinese firms. They are not sitting back thinking, “Oh, this is great. Let’s take a nap because the Chinese ain’t selling here.” To believe that is just silly. Competition among existing firms is already intense.

Second, had Smith bothered to review the literature fully, rather than cherry-picking a study that supported his fashionable new idea, he would have found that the Bloom study was subsequently and firmly rebutted. A 2019 scholarly journal study by Campbell and Mau found the opposite result, consistent with most research on impacts on firms in the United States. Campbell and Mau concluded:

[T]he apparent positive impact of Chinese competition on European patenting [that Bloom et al. found] disappears once one controls for richer sectoral trends, the lagged level of patents, or switches to Chinese import penetration instead of the Chinese share of imports … Thus, we believe we have partially solved the puzzle of why the rise of China ostensibly had a negative impact on patents in the US (or, others have found no impact on R&D for the US), but a positive impact in Europe—the latter results appear to be spurious.

Indeed, they found that “when controlling for lagged patents and outsourcing, and using Chinese penetration, one is more likely to get negative and significant coefficients.”

Smith’s claim is a bit like arguing that the New England Patriots need to play not only the Seattle Seahawks to stay motivated (the equivalent of today’s already intense competitive environment in most industries), but also a team whose players are on mega steroids, wield brass knuckles, and never get called for holding.

In summary, some foreign greenfield investment can strengthen U.S. techno-economic power. But it cannot substitute for domestic firm creation, expansion, or innovation. As such, what the United States needs is a robust, sophisticated national techno-industrial strategy, one that restores America as a global core region for innovation and advanced production, rather than a peripheral region dependent on investment decisions made in Beijing or elsewhere.

ITIF’s Hamilton Center on Industrial Strategy is producing a special research series examining China’s predatory industrial strategies, their impact on U.S. technological leadership, and the policy framework needed to strengthen America’s “national power industries”—advanced, traded-sector industries critical to economic strength and national security. ITIF will publish new reports in this series throughout 2026, many focused on concrete policy reforms across areas such as business financing, STEM research, budget policy, and regulation, aimed at rebuilding U.S. techno-economic strength and competing effectively with China.

Davos this week made that unmistakably clear. Canadian Prime Minister Mark Carney led the way with a blistering attack on the United States:

Over the past two decades, a series of crises in finance, health, energy and geopolitics have laid bare the risks of extreme global integration. But more recently, great powers have begun using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, supply chains as vulnerabilities to be exploited. You cannot live within the lie of mutual benefit through integration, when integration becomes the source of your subordination.

It was a truly astounding speech, revealing not only weakness, but a willingness to abandon the alliance at the first sign of friction. Don’t be fooled by the absence of the word “America.” The target of his ire was unmistakable.

Carney spoke of health as a risk to global integration. Could he possibly mean the COVID virus that likely escaped from a Chinese government laboratory, and whose officials actively suppressed and obscured information about its spread? No, no mention of that.

He warned of financial infrastructure as a form of coercion. Was he possibly referring to U.S. sanctions on Russia for invading Ukraine, sanctions that imposed real costs on the United States itself? No.

He spoke of supply chains as tools of exploitation. Was he calling out China’s decade-long weaponization of rare earths? Again, no.

Instead, all arrows pointed toward the newly designated “main enemy”: Trump and the USA.

Finally, tariffs as weapons. There is plenty to criticize about Trump’s tariffs, as ITIF has repeatedly done. But Carney, and many other alliance leaders at Davos, conveniently ignored a central fact: For decades, the United States served as the world’s consumer market, running massive trade deficits and hollowing out its own manufacturing base. Much of this was driven by foreign protectionism, compounded by the fact that the dollar serves as the world’s reserve currency, a status that significantly benefits foreign exporters.

PM Carney also failed to mention that Canada thrived under a past system it knew how to exploit with impunity. Canada has long appeared on the USTR’s Special 301 Report Watch List for weak intellectual property enforcement. It limits U.S. audio-video imports and imposes a digital services tax targeting U.S. firms. It maintains closed markets in dairy, aerospace, and banking, and restricts U.S. seed imports. Canada subsidizes lumber exports and runs a persistent trade surplus with the United States.

So please, spare us the lectures about American unfairness.

Canada praises the old system because it knew how to manipulate it to the advantage of Canadian producers. Oh, and on top of that, Mr. Carney knows perfectly well that Canada could have secured the same 10 percent tariff deal the United Kingdom got had it been willing to make modest concessions. But no, instead he chose the well-worn victim narrative against the big, bad Yanks.

Indeed, most purported allies are now tripping over themselves to cut deals with the Chinese Communist Party. The Western alliance be damned!

• Last week, Carney struck an unbelievably questionable deal with Xi Jinping to allow Chinese EV exports to Canada in exchange for Canadian canola.

• French President Emmanuel Macron flew to Beijing to beg for more trade and investment.

• Likewise, German Chancellor Friedrich Merz is expected to visit China next month to discuss “bilateral relations.”

• UK Prime Minister Keir Starmer refused to prosecute CCP spies in his government, fearing it would alienate Beijing. Starmer even floated a revived “golden era” of trade relations with China, contingent on allowing China to build a massive embassy in London, while castigating Conservative predecessors for insufficient kowtowing.

These “leaders” are not partners; they are supplicants, hoping Xi will refrain from punishing their countries and perhaps allow them to sell a few more goods in China, even as China eats their domestic industries alive.

Only Japan—and its new prime minister, Sanae Takaichi—has shown genuine backbone, demonstrating a willingness to stand up to the CCP, particularly in defending the South China Sea. Perhaps proximity provides clarity. After thousands of years beside China, Japan seems to understand Chinese imperial ambition when it sees it.

So how do we explain this abandonment of the alliance and the kowtowing to China? Are countries really just chasing a few yuan?

After World War II, the concept of “the West” referred to an alliance led by the United States and joined by Japan, South Korea, the Commonwealth nations, and Western Europe. Internally, the alliance was bound by shared commitments to markets and democracy, underwritten by U.S. economic and trade sacrifice to keep allied countries committed. Externally, the threat of Soviet expansionism and totalitarianism kept wavering partners aligned.

The collapse of the Soviet Union appeared to remove that external glue. Instead of confronting the reality of a new cold war with the PRC—a notion the global elite has long vociferously rejected—the majority of the elite embraced a utopian globalization. That same worldview later manifested in the claim that, to the extent a cold war existed at all, it was Trump’s fault.

Following Francis Fukuyama’s vision, they came to believe we reached the “end of history.” Market democracy was assumed to be the inevitable future, even for China. The world, they believed, was converging. As a result, the threat was no longer Marxist-Leninist authoritarianism. The biggest challenges were said to be climate change, racism, and U.S. militarism.

Then Trump entered the scene. In his first term, he withdrew from the Paris Climate Accords. On the first day of his second term, he made clear that “America First” applied to trade policy as well, refusing to tolerate the protectionist nonsense so many nations (including U.S. allies) have long used to inflate the U.S. trade deficit.

So, if your goal is global integration, fewer borders, open trade, and stringent CO₂ limits, Trump is the Antichrist. Xi, by contrast, is merely a statesman who says the right things—just another global leader who professes support for climate action, globalization, frictionless trade, and non-militarism.

Never mind the man behind the curtain, Xi, who says that China’s rise has “significantly shifted the worldwide historical evolution of the contest between the two different ideologies and social systems of socialism and capitalism in a way that favors socialism.” Or that China represents a “great struggle” and “systems contest” with Western capitalist democracy.

No, to the extent those inconvenient words are even heard, they are dismissed as propaganda meant to keep the masses engaged. After all, the real “truth” about the PRC is found at Davos, where CCP speeches are carefully crafted to soothe audiences and lull them into complacency.

If Trump knows how to alienate audiences, the PRC knows how to seduce them. Last year at Davos, naturally, Chinese Vice Premier Ding Xuexiang delivered exactly what the globalists wanted to hear:

First, we need to jointly promote a universally beneficial and inclusive economic globalization. Economic globalization is an inherent requirement for the development of productive forces, and an inevitable result of technological advancement.

Translation: Ignore China’s systematic undermining of the WTO to gain unfair and predatory advantages since joining it in 2001.

Second, we need to jointly uphold and practice true multilateralism.

Translation: The United States should stop defending its allies, while China reserves the right to continue backing Russia’s war in Ukraine.

Third, we need to jointly foster new drivers and strengths for global economic development… We should seize and make the most of these opportunities to promote international cooperation on scientific and technological innovation.

Translation: The CCP, which already disguises illicit technology transfer as “collaboration,” would greatly welcome access to sensitive industrial and defense technologies held by foreign governments and firms.

Don’t worry, Xuexiang saved the best for last. The closer:

Fourth, we need to jointly tackle major global challenges.

Oh, how the Davos Man swooned. Apparently unbothered by the fact that China’s coal-fired power plant construction just hit a ten-year high.

We have been here before. Alliances collapse.

Consider the Holy League (1571–1573), an alliance of Christian Mediterranean states, including Spain, Venice, the Papal States, Genoa, and others, united against the Ottoman Empire. The alliance achieved a spectacular victory at the Battle of Lepanto in 1571, one of history’s greatest naval battles. Yet within two years, it disintegrated—not because of defeat, but because of diverging priorities. Venice sought to protect its eastern Mediterranean trade routes. Spain focused on the western Mediterranean and became increasingly consumed by rebellions in the Netherlands. The Papal States pursued a broader religious crusade.

In 1573, Venice chose trade over solidarity, unilaterally making peace with the Ottomans to preserve its commercial interests. Spain was furious but too preoccupied to continue alone. The remaining members simply drifted away.

Welcome to today.

U.S. voters, exhausted by bearing the burdens of global leadership while so-called allies ran massive surpluses and free-rode on American security, elected Donald Trump—twice. Naturally, he then went to Davos. This year in particular, he arrived with a relatively simple message: Enough. Cut the nonsense, or you’re on your own.

The reality is that America did bear the burden. It defended Europe, Japan, and Korea from the threat of communism. And now those same allies run to align with a Marxist-Leninist adversary so they can sell a few more commodities, even if hollowing out their auto industries is part of the bargain (cough, cough, Canada).

Rather than rebuild the alliance under new and “palatable” leadership, today’s Western “leaders” collapsed like a house of cards at the first sign of trouble. They now publicly denounce America and sprint to Beijing, all while refusing to bear the burden of defending democracy themselves—because, apparently, that would require too much blood and treasure.

Let the Yanks bleed and pay, even as we insult and undermine them for doing it. And while we’re at it, let’s double down on technology protectionism. Let’s impose so-called “technology sovereignty” measures against U.S. firms; they deserve it, even if doing so only strengthens China.

In the Davos worldview, we are all simply humans. If there are any divisions, they are not between countries, but between the capitalist West and the rest of the world. And now, seemingly, between the evil, vulgar Trump and the enlightened, polite, and diplomatic global elite.

But if the globalists are wrong, and China is in fact seeking global hegemony—imposing its rules on the world, silencing criticism, and restructuring the international economy for its own benefit—then this is a true tragedy.

In that case, 2026 will be remembered as the year the West lost and China won. Because without a strong alliance, there is no way to constrain China’s techno-economic war against the West. No way to limit unfairly produced Chinese imports, protect sensitive technological exports, or build advanced industries together. There is no partnership strong enough to help the rest of the world resist the siren song of Beijing’s development model.

Perhaps Davos Man is right. Perhaps we are moving toward a wonderful, happy world—if only America would behave itself. Alas, I fear otherwise.

Even if a pragmatic, pro-alliance president takes U.S. office in 2029, the damage may be irreversible. Many U.S. allies have already moved on, their feelings hurt and their pride bruised. By 2029, China will be deeply embedded, giving the CCP greater leverage to ensure that any foreign leader who has a change of heart thinks twice about rejoining the Western alliance. Leverage, once gained, is rarely surrendered.

Maybe the Western alliance was doomed all along. America’s techno-economic and trade vulnerabilities, many of them caused by our “allies’” unfair trade practices and then exacerbated by decades of free-riding, made it almost inevitable that the United States would elect a nationalist, protectionist president.

And even if American politics could somehow have avoided that outcome, the reality is that many of our allies have long been fickle, anything but Churchillian. Winston Churchill famously proclaimed, at the darkest hour of the fight against the Nazis:

We shall go forward together. The road upwards is stony. There are upon our journey dark and dangerous valleys through which we have to make and fight our way. But it is sure and certain that if we persevere – and we shall persevere – we shall come through these dark and dangerous valleys into a sunlight broader and more genial and more lasting than mankind has ever known.

Western leaders today are more likely to say something along the lines of: “We shall go forward on our own. The road is smooth and traveled with pollution-free Chinese EVs. We shall try to persevere—but maybe we won’t. And most importantly, we will come through these dark and dangerous American valleys into a sunlit future powered by globalization, few borders, and our benevolent Chinese overlords.”

Finally, Western college students, especially in Europe, have long been fed a steady stream of propaganda holding that the Western liberal democratic system is not merely imperfect, but fundamentally evil. That mindset clearly extends beyond universities.

Many leaders in Europe, with perhaps the exception of Italian Prime Minister Giorgia Meloni, appear to have embraced a cultural relativism that treats Western values and traditions as not worth defending, or worse, as worthy of attack. Say what you want about Trump, but he does not accept this postmodern worldview.

The depth and longevity of this cultural erosion is visible in public attitudes. A 2011 Pew survey asked respondents in France, Germany, Spain, the United Kingdom, and the United States whether they agreed with the statement, “Our people are not perfect, but our culture is superior.” Just 20 percent of 30- to 49-year-olds in France and Spain agreed, compared to 44 percent in the United States.

These attitudes are indicative of what Benedict Beckeld calls “oikophobia,” the fear or hatred of one’s own home, society, or civilization. In such an environment, affirming confidence in Western values is treated less as civic pride than as moral transgression, with real costs enforced through the threat of being “canceled.” It should therefore come as no surprise that leaders who say, or truly believe, that the PRC’s authoritarian system is just as legitimate as their own are unwilling to robustly defend their own.

God help us. And let us hope that democratic India grows strong, powerful, and quickly.